[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Notices]
[Pages 6217-6230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3050]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10396]


Notice of Proposed Exemption for Certain Transactions Involving 
the Massachusetts Mutual Life Insurance Company (MM), Located in 
Springfield, MA

AGENCY: Pension and Welfare Benefits Administration, Labor

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed exemption from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and the Internal 
Revenue Code of 1986 (the Code). The proposed exemption would exempt 
certain transactions that may occur as a result of the sharing of real 
estate investments among various Accounts maintained by MM, including 
the MM general account and the general accounts of MM's affiliates 
which are licensed to do business in at least one state (collectively, 
the General Account), and the ERISA-Covered Accounts with respect to 
which MM is a fiduciary. As an acknowledged investment manager and 
fiduciary, MM is primarily responsible for the acquisition, management 
and disposition of the assets allocated to the ERISA-Covered Accounts.

DATES: Written comments and requests for a public hearing must be 
received by the Department on or before April 7, 1998.

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

[[Page 6218]]

Welfare Benefits Administration, Room N-5649, U.S. Department of Labor, 
200 Constitution Avenue, N.W., Washington, D.C. 20210, Attention: 
Application No. D-10396. The application for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5507, 200 Constitution Avenue, N.W., 
Washington, D.C. 20210.

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

Summary of Facts and Representations

    1. MM is a mutual life insurance company organized under the laws 
of the Commonwealth of Massachusetts and subject to supervision and 
examination by the Insurance Commissioner of the Commonwealth of 
Massachusetts. MM operates in all 50 states, as well as the District of 
Columbia and Puerto Rico, and presently has approximately 3 million 
individual and group policyholders and $242 billion of life insurance 
in force. MM, either directly or through its affiliates, offers a 
complete portfolio of life insurance, health insurance, asset 
accumulation products, health and pension employee benefits, plan 
administration and investment management services.1 It also 
provides health and pension benefits to its employees, including former 
employees of Connecticut Mutual Life Insurance Company (Connecticut 
Mutual).2 The assets of MM as of December 31, 1996 are 
estimated to be $55.7 billion and its assets under management as of 
that date are approximately $130.8 billion.
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    \1\ On March 31, 1996, MM sold its group life and health 
subsidiary, and will no longer offer group life and health insurance 
after the completion of a transition period under the purchase and 
sale agreement.
    \2\ On February 29, 1996, Connecticut Mutual, a mutual life 
insurance company organized under the laws of the State of 
Connecticut, was merged with and into MM. As a result of the merger, 
MM succeeded to all rights, benefits, obligations and liabilities of 
Connecticut Mutual. In addition, certain of the retirement plans of 
Connecticut Mutual and its affiliates were merged with and into the 
retirement plans of MM and its affiliates (collectively, the 
Affiliate Plans) as of January 1, 1997.
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    MM maintains several pooled separate accounts in which pension, 
profit-sharing and thrift plans participate, and also manages all or a 
portion of the assets of a number of large plans pursuant to various 
single customer separate accounts and advisory accounts (the ERISA-
Covered Accounts). A number of ERISA-Covered Accounts invest in equity 
interests in real estate or in mortgage loans. The ERISA-Covered 
Accounts, MM's general account (which includes all of MM's assets 
invested on behalf of its policyholders not participating in separate 
accounts), the general accounts of one or more of MM's affiliates which 
are insurance companies licensed to do business in at least one of the 
fifty states, accounts maintained by MM for foreign pension plans and 
other ``non-ERISA'' investors, and accounts which MM may establish in 
the future (collectively, the Accounts) may participate in the 
transactions which are the subject of this proposed exemption.
    2. The applicant represents that in recent years real estate has 
gained increasing popularity among plan sponsors. Various high quality 
commercial real estate investments from time to time become available 
which offer the potential for a higher rate of return than do other 
real estate investments. Because there are relatively few potential 
investors for large scale investments such as office buildings, 
shopping centers, and industrial parks, the owner or developer of such 
real estate investments must offer a higher return in order to attract 
investors. In many cases, MM's real estate accounts would be precluded 
from acquiring these investments on an individual basis because such 
investments would require the commitment of a disproportionately large 
percentage of account assets to one or a few investments. The sharing 
of large or uniquely desirable real estate investments would permit the 
ERISA-Covered Accounts to participate in more attractive and profitable 
real estate investments while maintaining portfolio diversification.
    3. The real estate investments which MM proposes to share may 
either take the form of a direct investment in real property or an 
interest in a joint venture partnership which holds title to, manages, 
and/or develops real property. MM's investments in joint venture 
partnerships may include an equity interest in the joint venture and a 
debt interest in mortgages to which the joint venture property is 
subject. Development joint venture arrangements could be ``leveraged''; 
that is, acquisition and development costs are met by the equity 
contribution of the joint venture partners and by loans to the 
partnership which are secured by the joint venture's interest in its 
real property. MM, on behalf of its Accounts, could own 50 percent of 
the joint venture partnership and provide 100 percent of the debt 
financing.
    4. MM anticipates that real estate investments will be allocated to 
each Account maintained by MM in the same proportions of debt and 
equity. No ERISA-Covered Account will participate in an investment for 
the purpose of enabling another Account to make an investment.
    5. General investment criteria for each ERISA-Covered Account are 
set forth in the separate account contract between MM and the plan 
contractholder. MM's allocation procedures provide for the allocation 
of each real estate investment opportunity to one or more Accounts for 
which the opportunity is suitable, taking into consideration each 
Account's investment criteria and strategy, as well as each Account's 
acquisition budget for the year. These procedures are periodically 
reviewed by MM to ensure that each Account receives equitable 
treatment.
    6. During the course of MM's holding of a real estate investment, 
certain situations may arise which require a decision to be made with 
regard to the management or disposition of the investment. For example, 
there may be a need for additional contributions of operating capital, 
or there may be an offer to purchase the investment by a third party or 
a joint venture partner. When MM shares these investments among more 
than one Account, a potential for conflict may arise since the same 
decision may not be in the best interest of each Account. Therefore, 
the applicant has submitted a request for exemption, with certain 
proposed safeguards designed to protect the interests of any 
participating ERISA-Covered Account in the resolution of potential or 
actual conflicts.
    7. Each plan contractholder currently participating in an ERISA-
Covered Account that proposes to share real estate investments which 
are structured as shared investments under this proposed exemption must 
be furnished with a written description of the transactions that may 
occur involving such investments which might raise questions under the 
conflict of interest prohibitions of the Act with respect to MM's 
involvement in such transactions and which are the subject of this 
proposed exemption. This description

[[Page 6219]]

must discuss the reasons why such conflicts of interest may be present 
(i.e., because the General Account participates in the investment and 
may benefit from the transaction or because the interests of the 
various Accounts participating in the investment may be adverse with 
respect to the transaction). The description must also disclose the 
principles and procedures to be used to resolve any anticipated 
impasses, as will be outlined below. In addition, each current 
contractholder in an ERISA-Covered Account that proposes to share 
investments must receive a copy of this notice of pendency within 
thirty days of its publication, and a copy of the exemption when 
granted before the Account begins to participate in the sharing of 
investments.
    8. With respect to new contractholders in an ERISA-Covered Account 
that participates in the sharing of investments, each prospective 
contractholder must be provided with the above mentioned written 
description, a copy of the notice of pendency and a copy of the 
exemption as granted before the contractholder begins to participate in 
the Account. A plan contractholder may withdraw from a single customer 
or open-end pooled ERISA-Covered Account by providing written notice to 
MM. Where a plan contractholder is in a closed-end pooled ERISA-Covered 
Account, it may not have a right to have its interest redeemed prior to 
the predetermined termination date, but it may sell its interest to a 
third party.
    9. An independent fiduciary or independent fiduciary committee must 
be appointed on behalf of each ERISA-Covered Account participating in 
the sharing of investments. The independent fiduciary, acting on behalf 
of the ERISA-Covered Account, shall have the responsibility and 
authority to approve or reject recommendations made by MM or its 
affiliates regarding the allocation of shared real estate investments 
to the ERISA-Covered Account and recommendations concerning those 
transactions occurring subsequent to the allocations which are the 
subject of this proposed exemption. The independent fiduciary is 
informed of the procedures set forth in the proposed exemption for the 
resolution of anticipated impasses prior to his or its acceptance of 
the appointments. MM and its affiliates shall provide the independent 
fiduciary with the information and materials necessary for the 
independent fiduciary to make an informed decision on behalf of the 
ERISA-Covered Account. No allocation or transaction which is the 
subject of the proposed exemption will be undertaken prior to the 
rendering of such informed decision by the independent fiduciary. 
However, the independent fiduciary need only have the authority to make 
decisions regarding allocations among, or any other subject transaction 
involving an ERISA-Covered Account and any other Account that occur 
after the plan(s) invest(s) in the ERISA-Covered Account. In the case 
of transactions involving the possible transfer of an interest in a 
real estate investment between the General Account and an ERISA-Covered 
Account, the independent fiduciary will not be limited to approving or 
rejecting the recommendations of MM, but will have full authority to 
negotiate the terms of the transfer (in accordance with the independent 
appraisal procedure described below) on behalf of the ERISA-Covered 
Account. The independent fiduciary shall also review on an as-needed 
basis, but not less than twice annually, the shared real estate 
investments in the ERISA-Covered Account's portfolio to determine 
whether the shared real estate investments are held in the best 
interest of the ERISA-Covered Account.
    10. The independent fiduciary must be unrelated to MM or its 
affiliates. The independent fiduciary may not be, or consist of, any 
officer, director or employee of MM, or be affiliated in any way with 
MM or any of its affiliates. (See definition of ``affiliate'' in 
Section V(a), below.) The independent fiduciary must be either (1) A 
business organization which has (or whose principals have) at least 
five years of experience with respect to commercial real estate 
investments, (2) a committee comprised of three to five individuals who 
each have at least five years of experience with respect to commercial 
real estate investments, or (3) the plan sponsor (or its designee) of a 
plan or plans that is the sole participant in an ERISA-Covered Account. 
An organization or individual may not serve as an independent fiduciary 
for an ERISA-Covered Account for any fiscal year if the gross income 
(excluding retirement income) received by such organization or 
individual (or any partnership or corporation of which such 
organization or individual is an officer, director, or ten percent or 
more partner or shareholder) from MM and its affiliates for that fiscal 
year exceeds five percent of its or his annual gross income from all 
sources for the prior fiscal year. If such organization or individual 
had no income for the prior fiscal year, the five percent limitation 
shall be applied with reference to the fiscal year in which such 
organization or individual serves as an independent fiduciary. The 
income limitation will exclude compensation for services of an 
independent fiduciary who is initially selected by a plan sponsor for a 
single customer ERISA-Covered Account, because this situation would not 
give rise to the possibility of divided loyalty on the part of the 
independent fiduciary. The income limitation will include services 
rendered to the Accounts under any prohibited transaction exemptions 
granted by the Department. In addition, no organization or individual 
who is an independent fiduciary, and no partnership or corporation of 
which such organization or individual is an officer, director or ten 
percent or more partner or shareholder, may (i) Acquire any property 
from, sell any property to, or borrow any funds from, MM or its 
affiliates, during the period that such organization or individual 
serves as an independent fiduciary and a period of six months after 
such organization or individual ceases to be an independent fiduciary, 
or (ii) negotiate any such transaction during the period that such 
organization or individual serves as independent fiduciary. The 
independent fiduciary of a pooled ERISA-Covered Account may be a 
committee of three to five investors or investor representatives 
approved by the plans participating in the pooled ERISA-Covered 
Account.3 A business organization or committee member may 
not serve as an independent fiduciary of more than one ERISA-Covered 
Account.
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    \3\ The Department notes that where the independent fiduciary 
consists of such a committee, the committee members would each need 
to have the requisite minimum of five years' experience with respect 
to commercial real estate investments.
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    11. In the case of a single customer ERISA-Covered Account, if the 
plan sponsor or its designee decides not to act as the independent 
fiduciary, the independent fiduciary or independent fiduciary committee 
will be selected initially by MM. In that event, the independent 
fiduciary must be approved by the plan sponsor or another plan 
fiduciary prior to the commencement of its fiduciary responsibilities 
on behalf of the ERISA-Covered Account. The applicant represents that 
because pooled ERISA-Covered Accounts often include several hundred 
plan contractholders, the independent fiduciary will be selected 
initially by MM. Prior to the commencement of the independent 
fiduciary's responsibilities on behalf of an Account, the selection of 
the independent fiduciary, however, must be approved by a majority of 
the

[[Page 6220]]

contractholders in such an Account by vote proportionate to their 
interests in the Account.
    12. For both single customer and pooled ERISA-Covered Accounts, 
prior to the making of any decision to approve the selection of an 
independent fiduciary, plan contractholders must be furnished 
appropriate biographical information pertaining to the independent 
fiduciary or members of the independent fiduciary committee. This 
biography must set forth the background and qualifications of the 
fiduciary (or fiduciaries) to serve in that capacity. The information 
must also disclose the total amount of compensation received by the 
fiduciary (or each member of a fiduciary committee) from MM or an MM 
affiliate during the preceding year, including compensation for any 
business services performed by the fiduciary or any affiliate for MM or 
its affiliates. The disclosure relating to compensation must be updated 
annually thereafter. Subsequent disclosures must also include the 
amount of fees and expenses paid for independent fiduciary services. 
The plans will be able to use this information to determine whether to 
approve MM's initial selection of the fiduciary or fiduciary committee 
and whether to continue such approval each year thereafter.4
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    \4\ MM represents that the contractholders in its single 
customer and pooled closed-end real estate Accounts are 
knowledgeable and sophisticated investors who fully understand the 
operation of the ERISA-Covered Accounts.
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    13. Once an independent fiduciary committee or organization is 
appointed, the members of the committee or the organization will 
continue to serve subject to an annual vote by each of the plans 
participating in the ERISA-Covered Account. An independent fiduciary or 
committee member may be removed by a majority vote of the Account's 
contractholders or, in the case of a committee member, ``for cause'' by 
a majority vote of the other members of the committee. The term ``for 
cause'' means that there must be sufficient and reasonable grounds for 
removal and the reasons for removal must be related to the ability and 
fitness of an individual to perform his or her required duties. MM will 
not have the authority to remove an independent fiduciary or a member 
of an independent fiduciary committee. If a vacancy occurs by virtue of 
the death, resignation or removal of a member of an independent 
fiduciary committee, replacement members of the committee will be 
appointed by a majority vote of remaining members of the committee. 
Possible replacements may be suggested by members of the committee, MM 
or plan contractholders. If an organization acting as independent 
fiduciary is removed by majority vote of the Account's contractholders, 
the procedure described above for the initial selection of an 
independent fiduciary will apply to the replacement.
    14. The independent fiduciary will be compensated by the ERISA-
Covered Account. MM may indemnify any independent fiduciary or members 
of an independent fiduciary committee with respect to any action or 
threatened action to which such person is made a party by reason of his 
or her service as an independent fiduciary. Indemnification will be 
provided as permitted under the laws of the Commonwealth of 
Massachusetts and subject to the requirement that such person acted in 
good faith and in a manner he or she reasonably believed to be solely 
in the interests of the participants and beneficiaries of the plans 
participating in the Account.
    15. Written minutes must be taken and maintained in connection with 
all meetings involving independent fiduciary committees of ERISA-
Covered Accounts. Such minutes must include a rationale as to why 
decisions were made. Where the independent fiduciary is a committee, 
decisions will be made on the basis of a majority vote. Any dissenting 
committee member will provide a written rationale for his dissent. 
Where the independent fiduciary is a single entity (e.g., a business 
organization) for which no minutes of meetings would be maintained, all 
decisions of such independent fiduciary and rationale thereof must be 
set forth in writing and maintained by MM pursuant to the recordkeeping 
requirements outlined in the General Conditions below.
    16. In connection with the management of real estate shared 
investments, it is possible that MM, on behalf of the General or Non-
ERISA Accounts, or the independent fiduciaries for ERISA-Covered 
Accounts participating in a shared investment, may develop different 
approaches as to whether or how long an investment should be held by an 
Account. Certain situations may also arise during the course of MM's 
holding of a shared real estate investment in which decisions will need 
to be made where it is not possible to obtain the agreement of MM and 
all of the independent fiduciaries involved. These situations may arise 
as a result of an action taken by a third party, or they may arise in 
connection with an action proposed by MM or the independent fiduciary 
for an ERISA-Covered Account. In such cases, MM will make 
recommendations to the independent fiduciaries regarding a proposed 
transaction. If a course of action cannot be found that is acceptable 
to each independent fiduciary, a stalemate procedure will be followed 
to ensure that a decision can be made. The applicant represents that 
the stalemate procedure is similar to procedures typically used to 
resolve disputes between co-venturers under real estate joint venture 
agreements and is therefore familiar to most real estate investors.
    17. With respect to stalemates between two or more ERISA-Covered 
Accounts which share an investment, the stalemate procedure is designed 
to provide a result that is similar to what would occur in comparable 
situations where unrelated parties to a transaction were dealing at 
arm's length. This means that the action which will be taken in such 
cases is the one that does not require an Account: 1) to invest new 
money; 2) to change the terms of an existing agreement; or 3) to change 
the existing relationship between the Accounts.
    18. However, one additional option will be provided in the event of 
such stalemates. Where investments are shared by two or more Accounts 
(other than the General Account), MM will make recommendations to the 
independent fiduciaries of each participating ERISA-Covered Account 
regarding investment management decisions that must be made for a real 
estate shared investment. For example, if the independent fiduciaries 
cannot agree on a MM recommendation, MM may offer alternate 
recommendations (possibly including partition and sale of undivided 
interests) in an attempt to facilitate agreement. If the independent 
fiduciaries still cannot agree, each ERISA-Covered Account will be 
offered the opportunity to buy out the other ERISA-Covered Account's 
interest on the basis of a specified price. The specified price may be 
based on the price offered by a third party, or, if no third party 
offer is received (or if the third party offer is unacceptable to 
either ERISA-Covered Account), the specified price will be the price 
established under the independent appraisal procedure described below. 
As in a buy-sell provision in a typical joint venture, the ERISA-
Covered Account to which the offer is made will have the option to sell 
to the offering ERISA-Covered Account at the specified price, or to buy 
out the offering ERISA-Covered Account's interest at that price.
    19. If the independent fiduciary for the ERISA-Covered Account 
which disagrees with MM's recommendation

[[Page 6221]]

does not wish to make a buy-sell offer to the other ERISA-Covered 
Account, the other Account(s) (except for the General Account) may do 
so. If no ERISA-Covered Account chooses to exercise the buy-sell 
option, MM will take the action designed to preserve the status quo, 
i.e., the action designed to avoid expenditure of additional funds by 
the Accounts and avoid any change in existing arrangements or 
contractual relationships.
    20. Where a real estate investment is shared by the General Account 
and one or more ERISA-Covered Accounts and a stalemate occurs between 
the General Account and an ERISA-Covered Account, MM may offer 
alternate recommendations to facilitate an agreement. If the Accounts 
still cannot reach agreement, each Account will be offered the 
opportunity to buy out the other Account's interest on the basis of a 
specified price, which will be established in accordance with the 
independent appraisal procedure described below, or will be the price 
offered by a third party. If none of the Accounts elects to make a buy-
sell offer to the other Account, MM would be required to take the 
action selected by the independent fiduciary of the ERISA-Covered 
Account. Where the General Account wishes, e.g., to hold its interest 
and the independent fiduciary for the ERISA-Covered Account determines 
to sell its interest, the General Account will buy out the interest of 
the ERISA-Covered Account at the price offered by the third party, or, 
at the ERISA-Covered Account's option, at an independently determined 
price. Conversely, where the independent fiduciary for the ERISA-
Covered Account determines to retain its interest while the General 
Account wants to sell its interest, the ERISA-Covered Account has the 
option of buying out the General Account, or, if the independent 
fiduciary chooses not to, the status quo will be maintained.

Specific Transactions

I. Direct Real Estate Investments

(a) Transfers Between Accounts
    21. Following the initial sharing of investments, it may be in the 
best interests of the Accounts participating in the investment for one 
Account to sell its interest to the other(s). Such a situation may 
arise, for example, when one Account experiences a need for liquidity 
in order to satisfy the cash needs of the plans participating in the 
Account, while for the other Account(s) the investment remains 
appropriate. One possible means of reconciling this situation is for 
the ``selling'' Account to sell its interest in the shared investment 
to the remaining participating Account(s) or to another Account(s) at 
current fair market value. Such sales may not, however, be appropriate 
in all circumstances. An inter-Account transfer will only be permitted 
when it is determined to be in the best interests of each Account that 
would be involved in the transaction. The transfer may also be subject 
to the approval of the Insurance Departments of a number of states, 
including Massachusetts and/or New York. Because MM would be acting on 
behalf of both the ``buying'' and ``selling'' Accounts (but not the 
General Account) in such an inter-Account transfer, the transfer might 
be deemed to constitute a prohibited transaction under section 
406(b)(2) of the Act. Accordingly, exemptive relief is requested herein 
for the sale or transfer of an interest in a shared real estate 
investment by one ERISA-Covered Account to another Account of which MM 
is a fiduciary. Such transfers would have to be at fair market value 
and approved by the independent fiduciary for each ERISA-Covered 
Account involved in the transfer.
    Ordinarily, no transfer of an interest in a shared investment will 
be permitted between the General Account and an ERISA-Covered Account. 
The transfer of an interest in a shared investment between the General 
Account and an ERISA-Covered Account may be deemed to constitute a 
violation of sections 406(a)(1) (A) and (D) as well as sections 406(b) 
(1) and (2) of ERISA. As noted above, however, where a stalemate arises 
between the General Account and an ERISA-Covered Account, the transfer 
of such an interest would be permitted to resolve the conflict. 
Specific stalemate procedures have been developed for these situations. 
If, for example, a third party makes an offer to purchase the entire 
investment held by MM on behalf of the General Account and an ERISA-
Covered Account, it is possible that the General Account would like to 
accept the offer and the independent fiduciary on behalf of the ERISA-
Covered Account would like to reject the offer. In that event, MM may 
offer alternative recommendations to the independent fiduciary. If 
there is still no agreement, the independent fiduciary (as the party 
wishing to reject the offer) would be given the opportunity to buy-out 
the General Account's interest at a specified price. This price may be 
a proportionate share of the third party offer; or, if such price is 
unacceptable to the ERISA-Covered Account, a proportionate share of the 
price determined through the independent appraisal procedure described 
below. This procedure would give the ERISA-Covered Account an 
opportunity to retain its interest in the shared investment. If the 
ERISA-Covered Account does not choose to buy-out the General Account's 
interest, the General Account would be required to accede to the 
direction of the ERISA-Covered Account and would, therefore, reject the 
third party offer.
    If, in the event of a third party purchase offer, the General 
Account wants to reject the offer but the independent fiduciary on 
behalf of the ERISA-Covered Account wants to accept the offer, the 
procedures described above would apply, except that the General Account 
(as the party wishing to reject the offer) would have the opportunity 
to buy-out the ERISA-Covered Account's interest at a proportionate 
share of the third party purchase offer, or, at the option of the 
independent fiduciary for the ERISA-Covered Account, at an 
independently determined price. This will permit the ERISA-Covered 
Account to sell its interest in a real estate investment, if it chooses 
to do so, at no less than the same price it would have received from a 
third party.
    Even in the absence of a third party offer, MM may recommend the 
sale of a shared investment. If the independent fiduciary approves the 
recommendation, MM will arrange for the sale. If the independent 
fiduciary does not approve MM's recommendation, MM may offer 
alternative recommendations, possibly including partition and sale of 
divided interests. If, however, no agreement is reached, the 
independent fiduciary (as the party wishing to reject the 
recommendation) would be given the opportunity to buy-out the General 
Account's interest in accordance with the independent appraisal 
procedure described below. If there is no buy-out, MM would take the 
course of action consistent with the ERISA-Covered Account's 
determination and would, therefore, not sell the investment.
    The independent fiduciary may also determine independently that a 
shared investment in an ERISA-Covered Account should be sold. If MM 
agrees with this recommendation, MM will arrange the sale. If MM, on 
behalf of the General Account, disagrees with the recommendation, MM 
will first attempt to sell the ERISA-Covered Account's interest to 
another Account other than the General Account. In this case, the sale 
price and other terms would have to be approved by the independent 
fiduciary for each ERISA-Covered Account. If the ERISA-Covered 
Account's interest cannot be sold to another Account, MM may offer

[[Page 6222]]

alternative recommendations, possibly including partition and sale of 
the ERISA-Covered Account's interest to a third party. If no agreement 
is reached with respect to these options, the General Account (as the 
party opposed to the sale) would have the opportunity of buying out the 
ERISA-Covered Account's interest at a price established under 
independent appraisal procedures described below. If there is no buy-
out and no agreement, MM will be required to take the course of action 
consistent with the ERISA-Covered Account's determination and will sell 
the entire investment.
    Where an independent price for the transfer of an interest in a 
shared investment between the General Account and an ERISA-Covered 
Account is not established by an offer from an unrelated third party 
(or where the third party price is unacceptable to the ERISA-Covered 
Account), the stalemate procedure provides for the appointment of an 
independent appraiser. Under this procedure, MM and the independent 
fiduciary will each appoint an independent appraiser. These two 
appraisers will then choose a third appraiser. The panel of appraisers 
will each evaluate the entire investment, and the average of the three 
appraisals will be used to determine the proportional value of each 
shared investment interest. However, the General Account and the ERISA-
Covered Account may agree that, if one valuation is more than a 
specified percentage outside the range of the other two valuations, 
that valuation may be disregarded and the transfer price will be the 
average of the remaining two valuations. The applicant represents that 
this procedure, which is of the variety typically used in real estate 
joint venture agreements, provides adequate protection for the ERISA-
Covered Account because the independent fiduciary is an equal 
participant in the appraisal process. See Section I(a).
(b) Joint Sales of Property
    22. In situations involving shared real estate investments, an 
opportunity may arise to sell the entire investment to a third party, 
and it may be determined for all of the participating Accounts that the 
sale is desirable. When the General Account is participating in the 
investment, and the sale is therefore determined to be in the best 
interests of the General Account (in addition to being in the interests 
of the other Account(s)), the sale might be deemed to constitute a 
prohibited transaction under section 406 of the Act and section 4975 of 
the Code.5 Similarly, MM may be acting on behalf of two 
ERISA-Covered Accounts or an ERISA-Covered Account and a non-ERISA-
Covered Account other than the General Account. Accordingly, exemptive 
relief is requested for these joint sales. The sales would have to be 
approved by the independent fiduciary for each ERISA-Covered Account 
involved in the sale. In accordance with MM's stalemate procedures, if 
the independent fiduciary for one ERISA-Covered Account wishes to sell 
its interest in a shared investment and the independent fiduciary for 
another ERISA-Covered Account does not want to sell, MM will attempt to 
negotiate a compromise, including the transfer of interests from one 
Account to the other. If no agreement can be reached, the status quo 
will be maintained and no sale will be made. See Section I(b).
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    \5\ The Department notes that all future references to the 
provisions of the Act shall be deemed to include the parallel 
provisions of the Code.
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(c) Additional Capital Contributions
    23. On occasion, commercial real estate investments require 
infusions of additional capital in order to fulfill the investment 
expectations of the property. For example, developmental real estate 
investments sometimes require additional capital in order to complete 
the construction of the property. In addition, the cash flow needed to 
improve or operate completed buildings may also result in the need for 
additional capital. Such additional capital is frequently provided by 
the owners of the property. In the case of a property that is owned 
entirely by MM on behalf of the Accounts, it is contemplated that 
needed additional capital will ordinarily be contributed in connection 
with the investment in the form of an equity capital contribution made 
by each participating Account in an amount equal to such Account's 
existing percentage equity interest in the shared investment; 
6 that is, in the first instance, each Account would be 
afforded the opportunity to contribute additional capital on a fully 
proportionate basis. In the case of ERISA-Covered Accounts, all 
decisions regarding the making of additional capital contributions must 
be approved by the independent fiduciary for the Account. The making of 
an additional capital contribution could be deemed to involve a 
prohibited transaction under section 406 of the Act. If one or more 
participating Accounts in a shared investment is unable to provide its 
share of the needed additional capital, various alternatives may be 
appropriate, including having the other Account(s) make a 
disproportionate contribution. For example, where the General Account 
and an ERISA-Covered Account participate in a shared investment and the 
need for additional capital arises, it might be determined for 
liquidity reasons or other factors involving the ERISA-Covered Account 
that the additional contribution should not be made by that Account. As 
a result, the additional equity capital may be provided entirely by the 
General Account with the further consequence that the General Account 
would thereafter have a larger interest in the investment and, 
therefore, a larger share in the appreciation and income to be derived 
from the property.7 Such an adjustment in ownership 
interests might be deemed to constitute a prohibited (indirect sales) 
transaction under section 406 of the Act. In addition, these situations 
could also occur where two ERISA-Covered Accounts are involved or an 
ERISA-Covered Account and a non-ERISA-Covered Account are involved. 
Accordingly, the applicant is requesting exemptive relief that would 
permit the contribution of additional equity capital for a shared 
investment by Accounts participating in the investment (including the 
General Account). Any decision made or action taken by an ERISA-Covered 
Account (i.e., the contribution of either no additional capital, the 
Account's pro rata share of additional capital, less than or more than 
the Account's pro rata share, etc.) must be approved by such 
independent fiduciary. See Section I(c).
---------------------------------------------------------------------------

    \6\ In any case where the General Account participates in a 
shared investment with one or more ERISA-Covered Accounts and a call 
for additional capital is made, the General Account will always make 
a capital contribution that is at least equivalent proportionately 
to the highest capital contribution made by an ERISA-Covered 
Account.
    \7\ In the case of shared real estate investments owned entirely 
by MM accounts, if an Account contributes capital equaling less than 
its pro rata interest in the investment (or makes no contribution at 
all), that Account's equity interest will be re-adjusted and reduced 
based on the change in the fair market value of the property caused 
by the infusion of new capital.
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(d) Lending of Funds To Meet Additional Capital Requirements
    24. If the General Account and an ERISA-Covered Account participate 
in a shared investment that experiences the need for additional 
capital, and it is determined that the ERISA-Covered Account does not 
have sufficient funds available to meet the call for additional 
capital, the General Account might be willing and able to loan the 
required funds to the ERISA-Covered Account. Prior to any loan being 
made, it must be

[[Page 6223]]

approved by the independent fiduciary for the ERISA-Covered Account. 
Such loan will be unsecured and non-recourse, will bear interest at a 
rate that will not exceed the higher of the prime rate plus two 
percentage points or the prevailing interest rate on 90-day Treasury 
Bills, will not be callable at any time by the General Account, and 
will be prepayable at any time without penalty at the discretion of the 
independent fiduciary of the ERISA-Covered Account. See Section I(d).
(e) Shared Debt Investments
    25. MM occasionally makes real estate investments consisting of 
interim construction loans or medium or long-term loans on a property. 
In some instances, MM may have the opportunity to obtain an equity 
ownership interest in the underlying real property upon maturity of the 
debt or at the election of MM. It is possible that shared real estate 
debt investments might raise questions under section 406 of the Act in 
essentially two situations: (1) a material modification in the terms of 
a loan agreement, or (2) a default on a loan. From time to time, the 
terms of outstanding real estate loans need to be modified to take into 
account new developments. Such modifications may commonly include 
extensions of the term of the loan, revised interest rates, revised 
repayment schedules, changes in covenants or warranties to permit, for 
example, additional financing to be provided. These situations require 
a decision on behalf of the lender whether it would be in its own 
interest to make the modifications in question. Similarly, when a 
borrower commits an act of default under a loan agreement, the lender 
must determine, in its own interest, what action, if any, it wishes to 
take. Such action might involve foreclosure on the loan, a 
restructuring of the loan arrangement, or, in some cases as 
appropriate, no action at all. When a debt investment is shared among 
Accounts, a decision must be made on behalf of each Account with 
respect to the action to be taken when a loan modification or loan 
default situation occurs. These situations may also occur where two or 
more Accounts hold interests in debt investments in respect of the same 
property, and one interest is subordinate to the other in the event of 
insolvency. In some cases, moreover, it is conceivable that different 
actions might be desired by different Accounts. Normally, however, only 
one unified course of action is possible in the situation. Since MM 
maintains each of these Accounts, the action it decides to take for the 
participating Accounts may raise questions under section 406 of the 
Act. Accordingly, exemptive relief is being requested that will permit 
MM on behalf of the Accounts to take appropriate action with respect to 
the modification of the material terms of a loan or with respect to a 
default situation when the loan is a shared investment involving one or 
more ERISA-Covered Accounts. Each such action would require approval of 
the independent fiduciary for each ERISA-Covered Account. If there is 
an agreement among the independent fiduciaries as to the course of 
action to follow with regard to a proposed loan modification, or an 
adjustment in the rights upon default, such modification or adjustment 
will be implemented. If, upon full discussion of the matter, no course 
of action can be agreed upon by the independent fiduciaries, no 
modification of the terms of the loan or adjustment in the rights upon 
default would be made. The terms of the loan agreement as originally 
stated would be carried out. See Section I(e).

II. Joint Venture Investments

    26. Many real estate investments are structured as joint venture 
arrangements (rather than 100 percent ownership interest in property) 
in which MM and another party, such as a real estate developer or 
manager, participate as joint venturer partners (or co-venturers). 
Either MM or MM's co-venturer may act as managing partner of the joint 
venture. Joint venture investments typically involve several particular 
features by virtue of the terms and conditions of the joint venture 
agreements that may, when MM's joint venture interest is shared, result 
in possible violations of section 406 of the Act.
(a) Additional Capital Contributions to Joint Ventures
    27. As in the case of investments made entirely by MM, joint 
venture real estate investments sometimes require additional operating 
capital. Typically, a joint venture agreement will provide for a 
capital call by the general partner of the joint venture to be made to 
each joint venturer and that each venturer provide the needed capital 
on a pro rata basis either in the form of an equity contribution or a 
loan to the joint venture. If one joint venturer refuses to contribute 
its pro rata equity share of the capital call, the other joint 
venturer(s) may contribute additional capital to cover the short-fall 
and thereby ``squeeze down'' the interest in the venture of the non-
contributing joint venturer.8 Alternatively, if sufficient 
additional capital is not provided by the joint venturers, other 
financing may be sought, or the joint venture may be liquidated. In the 
case of a capital call where MM's joint venture interest is shared by 
two or more Accounts, a determination must be made on behalf of each 
Account participating in the shared investment with respect to whether 
it is appropriate for the Account to provide its proportionate share of 
additional capital requested by the joint venture. The general rule 
that MM will follow is that each Account will be given the opportunity 
to provide its pro rata share of the capital call, but for some 
Accounts it may be determined to be appropriate to provide less than a 
full share or no additional capital at all. In such cases, the interest 
of the Account would be reduced proportionately on a fair market basis. 
In the case of ERISA-Covered Accounts, all decisions regarding the 
making of additional capital contributions must be approved by the 
independent fiduciary for the Account. In addition to situations where 
some Accounts participating in the ownership of MM's joint venture 
interest may not be in a position to provide their share of a capital 
call, other situations may arise where the co-venturer is unable to 
make its additional capital contributions. Both of these situations may 
result in prohibited transactions under section 406 of the Act.
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    \8\ In the case of a call for additional capital involving a 
typical joint venture arrangement entered into between parties 
dealing at arm's length, the joint venture agreement may commonly 
provide that the equity interest of any non-contributing venturer be 
re-adjusted, or ``squeezed down'', on a capital interest basis. This 
involves re-adjusting the equity interests of the venturers solely 
on the basis of the percentage of total capital contributed without 
taking into account any appreciation on the underlying property. 
This ``capital interest'' adjustment can substantially diminish the 
equity interest of the non-contributing venturer in the actual 
current market value of the underlying property. Thus, this type of 
re-adjustment is intended to provide an incentive to all venturers 
to make their proportionate capital contributions so that 
improvements can be made and the operation of a property continued 
without burdening the other venturers.
---------------------------------------------------------------------------

    28. MM Shortfall. The General Account and an ERISA-Covered Account 
may experience a capital call from the general partner of the joint 
venture for either an additional equity or debt contribution. If it is 
determined that the ERISA-Covered Account does not have sufficient 
funds available to meet its contribution requirement, 9 the

[[Page 6224]]

General Account may make a loan to the ERISA-Covered Account to enable 
the ERISA-Covered Account to make its required pro rata capital 
contribution. Accordingly, subject to the conditions of the proposed 
exemption, Section II(a)(2) would provide relief for loans of this 
type. Prior to any loan being made, it would have to be approved by the 
independent fiduciary for the ERISA-Covered Account. Such loan will be 
unsecured and non-recourse, will bear interest at a rate that will not 
exceed the greater of the prime rate plus two percentage points or the 
prevailing interest rate on 90-day Treasury Bills, will not be callable 
at any time by the General Account, and will be prepayable at any time 
without penalty at the discretion of the independent fiduciary of the 
ERISA-Covered Account. In addition, the General Account may make an 
additional equity contribution to the joint venture to cover the ERISA-
Covered Account's shortfall. In that event, the equity interest of the 
ERISA-Covered Account will be ``squeezed down'' (relative to the equity 
interest of the General Account) on a fair market value basis. This 
option would avoid the capital basis squeeze-down of the ERISA-Covered 
Account's interest by the co-venturer. Such contribution would be made 
by the General Account only after the independent fiduciary for the 
ERISA-Covered Account is given an opportunity to make an additional 
contribution. See Section II(a)(3).
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    \9\ In any case where the General Account and one or more ERISA-
Covered Accounts share MM's interest in a joint venture, the General 
Account will always make a capital contribution that is at least 
equivalent proportionately to the highest capital contribution made 
by an ERISA-Covered Account, up to its pro rata share of the 
additional capital call. Thus, the General Account will never be the 
cause as between the Accounts of a capital contribution shortfall by 
MM that would result in a capital basis squeeze down by a co-
venturer.
---------------------------------------------------------------------------

    A similar situation may arise where two ERISA-Covered Accounts, or 
an ERISA-Covered and a non-ERISA-Covered Account, participate in a 
joint venture investment. If one Account is unable or unwilling to 
provide its proportionate share of a capital call, the other Account 
may be interested in making up the shortfall. This might be 
accomplished by means of an equity contribution with a resulting re-
adjustment on a current fair market value basis in the equity ownership 
interests of the participating Accounts. Thus, any of these 
disproportionate contribution situations between Accounts might result 
in a violation of section 406 of the Act. Subject to the generally 
applicable conditions of this proposed exemption, Section II(a)(3) 
provides relief for these disproportionate contributions.
    29. Co-Venturer Shortfall. In some cases, MM's co-venturer in a 
joint venture investment may be unable to meet its additional capital 
obligation, and MM may deem it advisable for some or all of the 
participating Accounts to contribute capital in excess of the pro rata 
share of MM's Accounts in the joint venture in order to finance the 
operation of the property (and thereby squeeze down the equity interest 
of the co-venturer).10 The applicant is requesting exemptive 
relief that would permit additional capital contributions to be made by 
participating Accounts (including the General Account) on a 
disproportionate basis if the need arises. Any instance involving the 
infusion of additional capital to a joint venture will be considered by 
the independent fiduciary for each ERISA-Covered Account participating 
in the investment and any action to be taken by the Account must be 
approved by the independent fiduciary. These actions might include 
contributing a pro rata share of additional equity capital (including a 
capital contribution that squeezes down the interest of a co-venturer 
on the basis provided in the joint venture agreement), contributing 
more or less than a pro rata share, or contributing no additional 
capital. See Section II(a)(4).
---------------------------------------------------------------------------

    \10\ In any case involving a shared joint venture interest held 
by the General Account and an ERISA-Covered Account, if it is 
determined that the ERISA-Covered Account will contribute its pro 
rata share of extra capital, the General Account would also 
contribute at least its pro rata share of such capital.
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(b) Third Party Purchases of Joint Venture Properties
    30. Under the terms of typical joint venture agreements, if an 
offer is received from a third party to purchase the assets of the 
joint venture, and one joint venture partner (irrespective of the 
percentage ownership interest of the joint venture partner) wishes to 
accept the offer, the other joint venture partner must either (1) also 
accept the offer, or (2) buy out the first partner's interest at the 
portion of the offer price that is proportionate to the first partner's 
share of the venture. For example, if MM on behalf of the Accounts and 
a real estate developer are joint venture partners in a property and an 
offer is received from another person to acquire the entire property 
that the developer wants to accept, MM on behalf of the Accounts would 
be obligated either to sell its interest also to the third party or to 
buy out the interest of the developer at the portion of the price 
offered by the third party proportionate to the developer's share of 
the venture. When MM's interest in a real estate joint venture is 
shared by two or more Accounts, it is likely that the same decision 
will be appropriate for each Account in any third-party purchase 
situation. See Sections I(b) and II(b)(1). It is also possible, 
however, that it might be in the interests of some Accounts to reject 
the offer and buy-out the developer, while other Accounts might not 
have the funds to do so or, for some other reason, would elect to sell 
to the third party. The joint venture agreements typically require, 
however, that MM on behalf of the Accounts provide the co-venturer with 
a unified buy or sell reply. Thus, in making a buy or sell decision in 
any of these cases involving an ERISA-Covered Account, MM might be 
deemed to be acting in violation of section 406 of the Act. Further, in 
order to resolve situations where the same reply is not appropriate for 
all participating Accounts, various alternatives may be adopted. For 
example, the Account(s) that wishes to continue owning the property may 
be willing and able to buy out not only the co-venturer, but also the 
other participating Account(s) that wishes to accept the third party 
offer to sell. Or, one Account may itself be willing and able to buy-
out the co-venturer while the other Account chooses to continue holding 
its original interest in the property. Alternatively, all of the 
Accounts may choose to participate in the buy-out, but on a basis that 
is not in proportion to their existing ownership interests. Such 
alternatives, when an ERISA-Covered Account is involved, while all 
possibly desirable from case to case, may also raise questions under 
section 406 of the Act, whether or not the General Account is a 
participant in the investment. Accordingly, the applicant is requesting 
exemptive relief that would permit MM to respond to third-party 
purchase offers as appropriate under the circumstances. Such a response 
might involve acceptance of the offer on behalf of all participating 
Accounts, a buy-out of a co-venturer by some or all of the 
participating Accounts on a pro rata or non-pro rata basis, or a buy-
out of the interest of one participating Account (and of the co-
venturer) by other participating Accounts. Any action by any ERISA-
Covered Account in these situations will be required to be approved by 
the independent fiduciary for the Account in accordance with the 
stalemate procedure, as described below (see rep. 31, below).
    31. In a case involving the sharing of a joint venture interest 
between two ERISA-Covered Accounts, if one ERISA-Covered Account wishes 
to buy out the co-venturer and the other ERISA-Covered Account is 
unable or unwilling to do so, the ERISA-Covered Account wishing to buy 
out the co-venturer

[[Page 6225]]

would have the opportunity to do so if the other ERISA-Covered 
Account's interests can also be accommodated. This could be 
accomplished if, for example (1) the second ERISA-Covered Account 
wishes to sell its interest to the first ERISA-Covered Account (at a 
proportionate share of the price offered by the third party offeror) 
and the first ERISA-Covered Account agrees; or (2) the second ERISA-
Covered Account wishes to continue holding its original interest. If, 
however, the second ERISA-Covered Account wishes to sell its interest 
and the first ERISA-Covered Account is unwilling or unable to buy it, 
both Accounts would be required to sell to the third party offeror in 
order to avoid the expenditure of additional funds by an unwilling 
Account.
    If the General Account participates in a joint venture interest 
subject to a third party purchase offer, the stalemate procedure would 
provide the same alternatives, except that if the General Account 
wishes to accept the third party purchase offer and the ERISA-Covered 
Account wishes to buy out the co-venturer (and is unwilling or unable 
to buy out the General Account's interest), the General Account would 
be required to buy out the co-venturer with the ERISA-Covered Account. 
See Section II(b).
(c) Rights of First Refusal in Joint Venture Agreements
    32. Under the terms of typical joint venture agreements, if a joint 
venture partner wishes to sell its interest in the venture to a third 
party, the other joint venture partner must be given the opportunity to 
exercise a right of first refusal to purchase the first partner's 
interest at the price offered by the third party. For example, if MM 
and a real estate developer are joint venture partners and the 
developer decided to sell its interest to a third party, MM would have 
the right to purchase the developer's interest at the price offered by 
the third party. In the case of shared real estate joint ventures, the 
decision by MM on behalf of the Accounts with respect to whether or not 
to exercise a right of first refusal might raise questions under 
section 406 of the Act since each Account participating in the 
investment might be affected differently by such decision. Because, 
under the terms of the joint venture agreement, only one option 
(exercise or not exercise) may be chosen by MM on behalf of the 
Accounts, exemptive relief is being requested that would permit MM to 
exercise or not exercise a right of first refusal as may be appropriate 
under the circumstances. Any action taken on behalf of an ERISA-Covered 
Account regarding the exercise of such a right would have to be 
approved by the independent fiduciary. Further, under the requested 
exemption, if the General Account and an ERISA-Covered Account share a 
joint venture investment, even though MM may initially decide on behalf 
of the General Account not to make a purchase under a right of first 
refusal option, the General Account will be required to participate in 
the purchase of the other joint venturer's interest if the independent 
fiduciary determines that it is appropriate for the ERISA-Covered 
Account to participate in the exercise of the right of first refusal on 
at least a pro rata basis. If, however, two Accounts other than the 
General Account participate in a joint venture and agreement cannot be 
reached on behalf of the Accounts on whether to exercise a right of 
first refusal, the right will not be exercised and the co-venturer will 
be permitted to sell its interest to the third party, unless one 
Account decides to buy-out the co-venturer alone. In this regard, it is 
conceivable that some participating Accounts may elect to take 
advantage of a right of first refusal opportunity and buy-out a co-
venturer without other participating Accounts taking part in the 
transaction. For example, in the case of a shared joint venture 
investment involving the General Account (or any other Account) and an 
ERISA-Covered Account, if the co-venturer wishes to accept an offer to 
sell its interest and the independent fiduciary of the ERISA-Covered 
Account decides not to have the account participate in purchasing the 
co-venturer's interest, the General Account (or other participating 
Account) would be free to make the purchase on its own. The exercise of 
a right of first refusal on such a disproportionate basis might also 
raise questions under section 406 of the Act for which exemptive relief 
may be needed. See Section II(c).
(d) Buy-Sell Provisions in Joint Venture Agreements
    33. Joint venture agreements entered into by MM typically provide 
that one joint venture partner may demand that the other partner either 
sell its interest to the first partner at a price as determined by the 
terms of the joint venture agreement or buy out the interest of the 
first partner at such price. If the other joint venture partner refuses 
to exercise either option within a specified period, it must sell its 
interest to the first partner at the stated price. These ``buy-sell'' 
provisions are generally used to resolve serious difficulties or 
impasses in the operation of a joint venture, but generally a joint 
venture agreement permits the buy-sell provision to be exercised at any 
time. As in the situations discussed above, the decision by MM on 
behalf of the Accounts to make a buy-sell offer, or its reaction to 
such an offer made by a co-venturer, may affect various participating 
Accounts differently. Accordingly, any decision made by MM in these 
cases involving ERISA-Covered Accounts might raise questions under 
section 406 of the Act. The applicant is requesting exemptive relief 
that would permit MM to make an appropriate decision under the 
circumstances on behalf of all participating Accounts to make a buy-
sell offer to a co-venturer or to react to a buy-sell offer from a co-
venturer. Any such decision must be approved by the independent 
fiduciary for each ERISA-Covered Account participating in the 
investment.
    34. In the event that MM recommends the initiation of the buy-sell 
option against the co-venturer, MM will exercise the option if the 
independent fiduciary on behalf of each participating ERISA-Covered 
Account approves the recommendation. If, in the case of a General 
Account/ERISA-Covered Account shared joint venture investment, the 
independent fiduciary does not agree with MM's recommendation, the 
independent fiduciary would be given the opportunity to buy out the 
General Account's interest at a price to be determined in accordance 
with the independent appraisal procedure described above. If the 
independent fiduciary declines to buy out the General Account's 
interest, the General Account would then have the opportunity to buy 
out the ERISA-Covered Account's interest, (provided the independent 
fiduciary for the ERISA-Covered Account approves of such sale), also in 
accordance with the independent appraisal procedure. If neither the 
General Account nor the ERISA-Covered Accounts buys out the other's 
interest in the joint venture investment, MM would take the course of 
action most consistent with the determination of the ERISA-Covered 
Account, and would, therefore, not exercise the buy-sell option.
    In the event that the co-venturer initiates the buy-sell option 
with respect to a shared joint venture investment, MM must either sell 
its entire interest to the co-venturer or reject the offer and buy-out 
the co-venturer's interest at that price. If the participating Accounts 
agree upon the course of action to be taken, MM will then take the 
agreed action. If no agreement is reached, various alternatives may be 
considered. For example, in the case of a General

[[Page 6226]]

Account/ERISA-Covered Account shared joint venture investment, if MM 
recommends rejection of the offer (and consequent purchase of the co-
venturer's interest), but the independent fiduciary wants to accept the 
offer, the General Account would have the option to purchase the co-
venturer's interest solely on behalf of the General Account. If the 
General Account chooses this option, the ERISA-Covered Account (which 
wished to accept the co-venturer's offer) would have the opportunity to 
sell its interest to the General Account, at a proportionate share of 
the price offered by the co-venturer, but would not be required to do 
so. However, if the General Account declines to purchase the ERISA-
Covered Account's interest where the ERISA-Covered Account wishes to 
accept the buy-sell offer, the entire joint venture interest would be 
sold to the co-venturer. If the ERISA-Covered Account wishes to reject 
the buy-sell offer (and purchase the co-venturer's interest) and the 
General Account wishes to accept the offer, the General Account would 
be required to purchase its proportionate share of the co-venturer's 
interest, unless the independent fiduciary for the ERISA-Covered 
Account elects to purchase more than its proportionate share (including 
the entire co-venturer interest).
    Where two or more ERISA-Covered Accounts share a joint venture 
investment, the stalemate procedure is similar, except that no ERISA-
Covered Account would be required to purchase the interest of a co-
venturer (and thus expend additional funds) against its wishes. See 
Section II(d).
(e) Transactions With Joint Venture Party in Interest
    35. The applicant represents that when the General Account holds a 
50 percent or more interest in a joint venture, the joint venture 
itself may be deemed to be a party in interest under section 3(14)(G) 
of the Act. Thus, any subsequent transaction involving the joint 
venture and an ERISA-Covered Account that is also participating in the 
venture (e.g., an additional contribution of capital) may be deemed to 
be a transaction between the plans participating in an ERISA-Covered 
Account and a party in interest (the joint venture itself) in violation 
of section 406. Accordingly, the applicant is requesting exemptive 
relief from the restrictions of section 406(a) of the Act, only, which 
would permit: (1) any additional equity or debt capital contributions 
to a joint venture by an ERISA-Covered Account which is participating 
in an interest in the joint venture, where the joint venture is a party 
in interest solely by reason of the ownership on behalf of the General 
Account of a 50 percent or more interest in such joint venture; or (2) 
any material modification in the terms of, or action taken upon default 
with respect to, a loan to the joint venture in which the ERISA-Covered 
Account has an interest as a lender. Either action would be conditioned 
upon the approval of the independent fiduciary for the ERISA-Covered 
Account. See Section III.

Initial Proportionate Allocations

    The applicant, MM, has not requested exemptive relief for the 
initial allocation of shared real estate investments by MM among two or 
more Accounts, at least one of which is an ERISA-Covered Account, where 
each of the Accounts participating in a real estate investment 
participates in the debt and equity interests in the same relative 
proportions as described in paragraph 3 above. It is the applicant's 
position that the initial sharing of a real estate investment pursuant 
to the described allocation by two or more Accounts maintained by MM 
(which may include both its General Account and one or more ERISA-
Covered Accounts) does not involve a per se violation of sections 
406(a)(1)(D) and 406(b)(1) and (b)(2) of the Act.
    Regulations under section 408(b)(2) of the Act (29 CFR 2550.408b-
2(e)) provide that the prohibitions of section 406(b) are imposed on 
fiduciaries to deter them from exercising the authority, control or 
responsibility which makes them fiduciaries when they have interests 
which may conflict with the interests of the plans for which they act. 
In such cases, the regulation states that the fiduciaries have 
interests in the transactions which may affect the exercise of their 
best judgment as fiduciaries. It is the Department's view, however, 
that a fiduciary does not violate section 406(b)(1) with respect to a 
transaction involving the assets of a plan if he does not have an 
interest in the transaction that may affect his best judgment as a 
fiduciary.
    Similarly, a fiduciary does not engage in a violation of section 
406(b)(2) in a transaction involving the plan if he represents or acts 
on behalf of a party whose interests are not adverse to those of the 
plan. Nonetheless, if a fiduciary causes a plan to enter into a 
transaction where, by the terms or nature of that transaction, a 
conflict of interest between the plan and the fiduciary exists or will 
arise in the future, that transaction would violate either section 
406(b)(1) or (b)(2) of the Act. Moreover, if, during the course of a 
transaction which, at its inception, did not involve a violation of 
section 406(b)(1) or 406(b)(2), a divergence of interests develops 
between the plan and the fiduciary, the fiduciary must take steps to 
eliminate the conflict of interest in order to avoid engaging in a 
prohibited transaction.
    In the view of the Department, the mere investment of assets of a 
plan on identical terms with a fiduciary's investment for its own 
account and in the same relative proportions as the fiduciary's 
investment would not, in itself, cause the fiduciary to have an 
interest in the transaction that may affect its best judgment as a 
fiduciary. Therefore, such an investment would not, in itself, violate 
section 406(b)(1). In addition, such shared investment, or an 
investment by a plan with another account maintained by a common 
fiduciary, pursuant to reasonable procedures established by the 
fiduciary would not cause the fiduciary to act on behalf of (or 
represent) a party whose interests are adverse to those of the plan, 
and therefore, would not, in itself, violate section 
406(b)(2).11
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    \11\ This analysis does not address any issues which may arise 
under section 406(b)(2) where investments are shared solely by two 
or more separate accounts maintained by a common fiduciary and the 
participation of one account is relied upon to support the initial 
investment of the other account.
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    With respect to section 406(a)(1)(D) of the Act which prohibits the 
transfer to, or use by or for the benefit of a party in interest 
(including a fiduciary) of the assets of a plan, it is the opinion of 
the Department that a party in interest does not violate that section 
merely because he derives some incidental benefit from a transaction 
involving plan assets. We are assuming, for purposes of this analysis, 
that the fiduciary does not rely upon and is not otherwise dependent 
upon the participation of plans in order to undertake its share of the 
investment.
    Thus, with respect to the investment of plan assets in shared 
investments which are made simultaneously with investments by a 
fiduciary for its own account on identical terms and in the same 
relative proportions, it is the view of the Department that any benefit 
that the fiduciary might derive from such investment under these 
circumstances is incidental and would not violate section 406(a)(1)(D) 
of the Act.
    Accordingly, since it appears that the method by which the 
interests in the real estate investments are allocated to the Accounts 
maintained by MM does not result in per se prohibited transactions 
under the Act, the Department has not proposed exemptive

[[Page 6227]]

relief with respect to the initial sharing of these investments.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include fiduciaries and participants of plans 
investing in ERISA-Covered Accounts which will be engaging in 
transactions described in the proposed exemption. Because of the number 
of affected persons, the Department has determined that the only 
practical form of providing notice to interested persons is the 
distribution, by MM, of the notice of proposed exemption as published 
in the Federal Register to the appropriate fiduciaries of each plan 
described above. The distribution will occur within 30 days of the 
publication of the notice of proposed exemption in the Federal 
Register.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Code does not relieve a fiduciary or other 
party in interest or disqualified person from certain other provisions 
of the Act and the Code, including any prohibited transaction 
provisions to which the exemption does not apply and the general 
fiduciary responsibility provisions of section 404 of the Act, which 
among other things require a fiduciary to discharge his duties 
respecting the plan solely in the interest of the participants and 
beneficiaries of the plan and in a prudent fashion in accordance with 
section 404(a)(1)(B) of the Act; nor does it affect the requirement of 
section 401(a) of the Code that the plan must operate for the exclusive 
benefit of the employees of the employer maintaining the plan and their 
beneficiaries;
    (2) The proposed exemption, if granted, will not extend to 
transactions prohibited under section 406(b)(3) of the Act and section 
4975(c)(1)(F) of the Code;
    (3) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan; and
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and the Code, 
including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.

Written Comments and Hearing Requests

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

Proposed Exemption

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

    If the exemption is granted, as indicated below, the restrictions 
of certain sections of the Act and the sanctions resulting from the 
application of certain parts of section 4975 of the Code shall not 
apply to the following transactions if the conditions set forth in 
Section IV are met:
    (a) Transfers Between Accounts
    (1) The restrictions of section 406(b)(2) of the Act shall not 
apply to the sale or transfer of an interest in a shared investment 
(including a shared joint venture interest) between two or more 
Accounts (except the General Account), provided that each ERISA-Covered 
Account pays no more, or receives no less, than fair market value for 
its interest in a shared investment.
    (2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code by reason of section 4975(c)(1)(A) through (E) of the 
Code shall not apply to the sale or transfer of an interest in a shared 
investment (including a shared joint venture interest) between ERISA-
Covered Accounts and the General Account, provided that such transfer 
is made pursuant to stalemate procedures, described in this notice of 
proposed exemption, adopted by the independent fiduciary for the ERISA-
Covered Account, and provided further that the ERISA-Covered Account 
pays no more or receives no less than fair market value for its 
interest in a shared investment.
    (b) Joint Sales of Property--The restrictions of sections 406(a), 
406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply to the sale to a 
third party of the entire interest in a shared investment (including a 
shared joint venture interest) by two or more Accounts, provided that 
each ERISA-Covered Account receives no less than fair market value for 
its interest in the shared investment.
    (c) Additional Capital Contributions--The restrictions of sections 
406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting 
from the application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply either to the 
making of a pro rata equity capital contribution by one or more of the 
Accounts to a shared investment; or to the making of a Disproportionate 
[as defined in Section V(e)] equity capital contribution by one or more 
of such Accounts which results in an adjustment in the equity ownership 
interests of the Accounts in the shared investment on the basis of the 
fair market value of such interests subsequent to such contribution, 
provided that each ERISA-Covered Account is given an opportunity to 
make a pro rata contribution.
    (d) Lending of Funds--The restrictions of sections 406(a), 
406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply to the lending of 
funds from the General Account to an ERISA-Covered Account to enable 
the ERISA-Covered Account to make an additional pro rata contribution, 
provided that such loan--
    (A) is unsecured and non-recourse with respect to participating 
plans,
    (B) bears interest at a rate not to exceed the greater of the prime 
rate plus two percentage points or the prevailing rate on 90-day 
Treasury Bills,
    (C) is not callable at any time by the General Account, and
    (D) is prepayable at any time without penalty.
    (e) Shared Debt Investments--In the case of a debt investment that 
is shared between two or more Accounts, including one or more of the 
ERISA-Covered Accounts, (1) the restrictions of sections 406(a) and 
406(b)(1) and (2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply to any material 
modification in the terms of the loan agreement resulting from a 
request by the borrower, any

[[Page 6228]]

decision regarding the action to be taken, if any, on behalf of the 
Accounts in the event of a loan default by the borrower, or any 
exercise of a right under the loan agreement in the event of such 
default, and (2) the restrictions of section 406(b)(2) of the Act shall 
not apply to any decision by MM thereof on behalf of two or more ERISA-
Covered Accounts: (A) not to modify a loan agreement as requested by 
the borrower; or (B) to exercise any rights provided in the loan 
agreement in the event of a loan default by the borrower, even though 
the independent fiduciary for one (but not all) of such Accounts has 
approved such modification or has not approved the exercise of such 
rights.

Section II--Exemption for Certain Transactions Involving the Management 
of Joint Venture Interests Shared by Two or More Accounts Maintained by 
MM

    If the exemption is granted, the restrictions of certain sections 
of the Act and the sanctions resulting from the application of certain 
parts of section 4975 of the Code shall not apply to the following 
transactions resulting from the sharing of an investment in a real 
estate joint venture between two or more Accounts, if the conditions 
set forth in Section IV are met:
    (a) Additional Capital Contributions--(1) The restrictions of 
sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions 
resulting from the application of section 4975 of the Code by reason of 
section 4975(c)(1)(A) through (E) of the Code shall not apply to the 
making of additional pro rata equity capital contributions by one or 
more Accounts participating in the joint venture.
    (2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code by reason of section 4975(c)(1)(A) through (E) of the 
Code shall not apply to the lending of funds from the General Account 
to an ERISA-Covered Account to enable the ERISA-Covered Account to make 
an additional pro rata capital contribution, provided that such loan--
    (A) Is unsecured and non-recourse with respect to the participating 
plans,
    (B) Bears interest at a rate not to exceed the greater of the prime 
rate plus two percentage points or the prevailing rate on 90-day 
Treasury Bills,
    (C) Is not callable at any time by the General Account, and
    (D) is prepayable at any time without penalty.
    (3) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code by reason of section 4975 (c)(1)(A) through (E) of the 
Code shall not apply to the making of Disproportionate [as defined in 
section V(e)] additional equity capital contributions (or the failure 
to make such additional contributions) in the joint venture by one or 
more Accounts which result in an adjustment in the equity ownership 
interests of the Accounts in the joint venture on the basis of the fair 
market value of such joint venture interests subsequent to such 
contributions, provided that each ERISA-Covered Account is given an 
opportunity to provide its proportionate share of the additional equity 
capital contributions; and
    (4) In the event a co-venturer fails to provide all or any part of 
its pro rata share of an additional equity capital contribution, the 
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code by reason of section 4975(c)(1)(A) through (E) of the Code shall 
not apply to the making of Disproportionate additional equity capital 
contributions to the joint venture by the General Account and an ERISA-
Covered Account up to the amount of such contribution not provided by 
the co-venturer which result in an adjustment in the equity ownership 
interests of the Accounts in the joint venture on the basis provided in 
the joint venture agreement, provided that such ERISA-Covered Account 
is given an opportunity to participate in all additional equity capital 
contributions on a proportionate basis.
    (b) Third Party Purchase Offers--(1) In the case of an offer by a 
third party to purchase any property owned by the joint venture, the 
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code by reason of section 4975(c)(1)(A) through (E) of the Code shall 
not apply to the acquisition by the Accounts, including one or more 
ERISA-Covered Account[s], on either a proportionate or Disproportionate 
basis of a co-venturer's interest in the joint venture in connection 
with a decision on behalf of such Accounts to reject such purchase 
offer, provided that each ERISA-Covered Account is first given an 
opportunity to participate in the acquisition on a proportionate basis; 
and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any acceptance by MM on behalf of two or more Accounts, 
including one or more ERISA-Covered Account[s], of an offer by a third 
party to purchase a property owned by the joint venture even though the 
independent fiduciary for one (but not all) of such ERISA-Covered 
Account[s] has not approved the acceptance of the offer, provided that 
such declining ERISA-Covered Account[s] are first afforded the 
opportunity to buy out both the co-venturer and ``selling'' Account's 
interests in the joint venture.
    (c) Rights of First Refusal--(1) In the case of the right to 
exercise a right of first refusal described in a joint venture 
agreement to purchase a co-venturer's interest in the joint venture at 
the price offered for such interest by a third party, the restrictions 
of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code by 
reason of section 4975(c)(1)(A) through (E) of the Code shall not apply 
to the acquisition by such Accounts, including one or more ERISA-
Covered Account[s], on either a proportionate or Disproportionate basis 
of a co-venturer's interest in the joint venture in connection with the 
exercise of such a right of first refusal, provided that each ERISA-
Covered Account is first given an opportunity to participate on a 
proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by MM on behalf of the Accounts not to exercise 
such a right of first refusal even though the independent fiduciary for 
one (but not all) of such ERISA-Covered Accounts has approved the 
exercise of the right of first refusal, provided that none of the 
ERISA-Covered Accounts that approved the exercise of the right of first 
refusal decides to buy-out the co-venturer on its own.
    (d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell 
option set forth in the joint venture agreement, the restrictions of 
sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions 
resulting from the application of section 4975 of the Code by reason of 
section 4975(c)(1)(A) through (E) of the Code shall not apply to the 
acquisition by one or more of the Accounts on either a proportionate or 
Disproportionate basis of a co-venturer's interest in the joint venture 
in connection with the exercise of such a buy-sell option, provided 
that each ERISA-Covered Account is first given the opportunity to 
participate on a proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by MM on behalf of two or more Accounts, 
including one or more ERISA-Covered Account[s], to sell the interest of 
such Accounts in the joint venture to a co-venturer even though the

[[Page 6229]]

independent fiduciary for one (but not all) of such ERISA-Covered 
Account[s] has not approved such sale, provided that such disapproving 
ERISA-Covered Account is first afforded the opportunity to purchase the 
entire interest of the co-venturer.

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

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code by reason of 
section 4975(c)(1)(A) through (D) of the Code shall not apply, if the 
conditions in Section IV are met, to any additional equity or debt 
capital contributions to a joint venture by an ERISA-Covered Account 
that is participating in an interest in the joint venture, or to any 
material modification in the terms of, or action taken upon default 
with respect to, a loan to the joint venture in which the ERISA-Covered 
Account has an interest as a lender, where the joint venture is a party 
in interest solely by reason of the ownership on behalf of the General 
Account of a 50 percent or more interest in such joint venture.

Section IV--General Conditions

    (a) The decision to participate in any ERISA-Covered Account that 
shares real estate investments must be made by plan fiduciaries who are 
totally unrelated to MM and its affiliates. This condition shall not 
apply to plans covering employees of MM.
    (b) Each contractholder or prospective contractholder in an ERISA-
Covered Account which shares or proposes to share real estate 
investments that are structured as shared investments under this 
exemption is provided with a written description of potential conflicts 
of interest that may result from the sharing, a copy of the notice of 
pendency, and a copy of the exemption if granted.
    (c) An independent fiduciary must be appointed on behalf of each 
ERISA-Covered Account participating in the sharing of investments. The 
independent fiduciary shall be either
    (1) A business organization which has at least five years of 
experience with respect to commercial real estate investments,
    (2) A committee composed of three to five individuals (who may be 
investors or investor representatives approved by the plans 
participating in the ERISA-Covered Account, and) who each have at least 
five years of experience with respect to commercial real estate 
investments, or
    (3) The plan sponsor (or its designee) of a plan (or plans) that is 
the sole participant in an ERISA-Covered Account.
    (d) The independent fiduciary or independent fiduciary committee 
member shall not be or consist of MM or any of its affiliates.
    (e) No organization or individual may serve as an independent 
fiduciary for an ERISA-Covered Account for any fiscal year if the gross 
income (other than fixed, non-discretionary retirement income) received 
by such organization or individual (or any partnership or corporation 
of which such organization or individual is an officer, director, or 
ten percent or more partner or shareholder) from MM, its affiliates and 
the ERISA-Covered Accounts for that fiscal year exceeds five percent of 
its or his or her annual gross income from all sources for the prior 
fiscal year. If such organization or individual had no income for the 
prior fiscal year, the five percent limitation shall be applied with 
reference to the fiscal year in which such organization or individual 
serves as an independent fiduciary. The income limitation shall not 
include compensation for services rendered to a single-customer ERISA-
Covered Account by an independent fiduciary who is initially selected 
by the Plan sponsor for that ERISA-Covered Account.
    The income limitation will include income for services rendered to 
the Accounts as independent fiduciary under any prohibited transaction 
exemption(s) granted by the Department. Notwithstanding the foregoing, 
such income limitation shall not include any income for services 
rendered to a single customer ERISA-Covered Account by an independent 
fiduciary selected by the Plan sponsor to the extent determined by the 
Department in any subsequent prohibited transaction exemption 
proceeding.
    In addition, no organization or individual who is an independent 
fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director or ten percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow any funds from, MM, its affiliates, or any Account maintained by 
MM or its affiliates, during the period that such organization or 
individual serves as an independent fiduciary and continuing for a 
period of six months after such organization or individual ceases to be 
an independent fiduciary, or negotiate any such transaction during the 
period that such organization or individual serves as independent 
fiduciary.
    (f) The independent fiduciary acting on behalf of an ERISA-Covered 
Account shall have the responsibility and authority to approve or 
reject recommendations made by MM or its affiliates for each of the 
transactions in this proposed exemption. In the case of a possible 
transfer or exchange of any interest in a shared investment between the 
General Account and an ERISA-Covered Account, the independent fiduciary 
shall also have full authority to negotiate the terms of the transfer. 
MM and its affiliates shall involve the independent fiduciary in the 
consideration of contemplated transactions prior to the making of any 
decisions, and shall provide the independent fiduciary with whatever 
information may be necessary in making its determinations.
    In addition, the independent fiduciary shall review on an as-needed 
basis, but not less than twice annually, the shared real estate 
investments in the ERISA-Covered Account to determine whether the 
shared real estate investments are held in the best interest of the 
ERISA-Covered Account.
    (g) MM maintains for a period of six years from the date of the 
transaction the records necessary to enable the persons described in 
paragraph (h) of this Section to determine whether the conditions of 
this exemption have been met, except that a prohibited transaction will 
not be considered to have occurred if, due to circumstances beyond the 
control of MM or its affiliates, the records are lost or destroyed 
prior to the end of the six-year period.
    (h)(1) Except as provided in paragraph (2) of this subsection (h) 
and notwithstanding any provisions of subsection (a)(2) and (b) of 
section 504 of the Act, the records referred to in subsection (g) of 
this Section are unconditionally available at their customary location 
for examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an ERISA-Covered 
Account engaging in transactions structured as shared investments under 
this exemption who has authority to acquire or dispose of the interests 
of the plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer to any plan participating in an 
ERISA-Covered Account engaging in transactions structured as shared 
investments under this exemption or any duly authorized

[[Page 6230]]

employee or representative of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
ERISA-Covered Account engaging in transactions structured as shared 
investments under this exemption, or any duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in subparagraphs (B) through (D) 
of this subsection (h) shall be authorized to examine trade secrets of 
MM, any of its affiliates, or commercial or financial information which 
is privileged or confidential.

Section V--Definitions

    For the purposes of this exemption:
    (a) An ``affiliate'' of MM includes --
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with MM,
    (2) Any officer, director or employee of MM or person described in 
section V(a)(1), and
    (3) Any partnership in which MM is a partner.
    (b) An ``Account'' means the General Account (including the general 
accounts of MM affiliates which are managed by MM), any separate 
account managed by MM, or any investment advisory account, trust, 
limited partnership or other investment account or fund managed by MM.
    (c) The ``General Account'' means the general asset account of MM 
and any of its affiliates which are insurance companies licensed to do 
business in at least one State as defined in section 3(10) of the Act.
    (d) An ``ERISA-Covered Account'' means any Account (other than the 
General Account) in which employee benefit plans subject to Title I or 
Title II of the Act participate.
    (e) ``Disproportionate'' means not in proportion to an Account's 
existing equity ownership interest in an investment, joint venture or 
joint venture interest.
    The proposed exemption, if granted, will be subject to the express 
conditions that the material facts and representations contained in the 
application are true and complete, and that the application accurately 
describes all material terms of the transactions to be consummated 
pursuant to the exemption.

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

    Signed at Washington, D.C., this 2nd day of February, 1998.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, Department of Labor.
[FR Doc. 98-3050 Filed 2-5-98; 8:45 am]
BILLING CODE 4510-29-P