
[Federal Register Volume 79, Number 124 (Friday, June 27, 2014)]
[Notices]
[Pages 36567-36568]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15029]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-31092; 812-14305]


College Retirement Equities Fund, et al.; Notice of Application

June 23, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 
18(f)(1) and 18(i) of the Act.

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Summary of Application:  Applicants request an order to permit a 
registered open-end management investment company that offers variable 
annuity contracts to issue multiple classes of units (``Units'') with 
varying administrative and/or distribution expenses and other expenses.

Applicants:  College Retirement Equities Fund (``CREF'') and TIAA-CREF 
Investment Management, LLC (the ``Advisor'').

Filing Dates: The application was filed on May 2, 2014, and amended on 
June 11, 2014.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on July 18, 2014, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit, or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants, c/o Rachael Zufall, 
TIAA-CREF, 8500 Andrew Carnegie Boulevard, Charlotte, NC 28262.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915 or Daniele Marchesani, Branch Chief, at (202) 551-6821 
(Chief Counsel's Office, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. CREF is a diversified open-end management investment company 
registered under the Act on Form N-3 that offers various types of 
variable annuity contracts. CREF is a nonprofit member corporation 
established by a special act of the New York State Legislature. CREF is 
governed by a board designated as a Board of Trustees, which is 
entirely composed of Trustees who are not interested persons of CREF 
within the meaning of section 2(a)(19) of the Act (the ``Board''). CREF 
is the companion organization of Teachers Insurance and Annuity 
Association of America (``TIAA''). Together, CREF and TIAA provide a 
retirement system for the nation's education and research communities. 
As of December 31, 2013, CREF's net assets were approximately $227 
billion.
    2. The Advisor, a subsidiary of TIAA, is registered with the 
Commission as an investment adviser under the Investment Advisers Act 
of 1940, as amended and serves as investment adviser to CREF on an at-
cost basis.
    3. CREF currently comprises eight investment portfolios (together 
with any investment portfolio that may be offered in the future, the 
``Accounts''), each of which has a distinct investment objective and 
investment strategies. CREF offers various types of variable annuity 
contracts, which are funded via a single class of Units (the ``Initial 
Class'') \1\ attributable to the various Accounts. Institutions and 
individual participants enter into contracts with CREF (each a 
``client''). CREF calculates the value of the assets in each Account as 
of the close of every day the New York Stock Exchange is open for 
trading (``Valuation Day''). CREF deducts expenses from the net assets 
of each Account each Valuation Day for investment management, 
administrative and distribution services. The Advisor, TIAA, and TIAA-
CREF Individual & Institutional Services, LLC (the ``Distributor''), 
the principal underwriter of CREF, provide or arrange for the provision 
of these services for CREF ``at-cost.'' \2\
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    \1\ ``Units'' include accumulation units and annuity units, 
which are used to measure the interest of each client (as defined 
below) in an Account during the accumulation period and the annuity 
period (if any), respectively. See SEC File Nos. 811-04415 and 33-
00480.
    \2\ Any person intending to rely on the requested relief is 
listed as an applicant.
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    4. CREF seeks exemptive relief that will permit it to offer 
multiple classes of Units with varying administrative and distribution 
expenses and other expenses specified in the application (``Covered 
Expenses''). Each New Class would be available to certain types of 
clients (e.g., IRAs or Keoghs) and/or clients with CREF assets under 
management at or above certain levels as approved by the Board pursuant 
to a Multi-Class Plan. The new classes of Units would have different 
levels of expenses to reflect the different administrative and 
distribution expenses actually incurred with respect to different types 
of clients and/or clients with CREF assets under management at or above 
certain levels as approved by the Board (each, a ``New Class''). Each 
class of Units would be subject to different administrative and/or 
distribution expenses and other expenses pursuant to the terms of a 
plan adopted by the CREF Board in accordance with the terms and 
conditions of the requested order (a ``Multi-Class Plan''). Under the 
proposed multiple class system (the ``Multiple Class System''), each 
class of Units would be offered without a front-end or contingent 
deferred sales load. Specific eligibility criteria for the classes of 
Units will be set forth in the Multi-Class Plan.\3\ Clients that meet 
the eligibility criteria for a New Class will be eligible to be moved, 
and those that do not will remain in the Initial Class.
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    \3\ For example, clients may only be eligible for a specific 
class during the annuity period.
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    5. CREF would continue to operate on an at-cost basis, and each 
class would operate on an at-cost basis. All expenses incurred by CREF 
would be allocated among its various classes of Units based on the 
respective average daily net assets attributable to each such class, 
except that the Unit value and expenses of each class will reflect the 
Covered Expenses attributable to the class. Covered Expenses of CREF 
allocated to a particular class of Units will be borne on a pro rata 
basis by each Unit of that class.
    6. CREF operates as a registered investment company in accordance 
with various exemptions from the Act.\4\ For

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instance, CREF has established an arrangement for the distribution of 
CREF Units (``12b-1 Plan'') that complies with all applicable 
provisions of rule 12b-1 under the Act except those relating to 
shareholder approval.\5\ Under the terms of the 12b-1 Plan, CREF 
reimburses the Distributor on an at-cost basis for actual expenses 
incurred in connection with distribution services for CREF. Applicants 
state that actual expenses for a class would vary, but a class of Units 
would bear annual distribution expenses consistent with the terms of 
the CREF 12b-1 Order as well as with the provisions of rule 2830(d) of 
the Conduct Rules of the National Association of Securities Dealers, 
Inc. (``NASD Conduct Rule 2830'').\6\
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    \4\ See, In the Matter of College Retirement Equities Fund and 
Teachers Insurance and Annuity Association of America, Investment 
Co. Act Rel. Nos. 15866 (July 10, 1987) (notice) and 17116 (Aug. 22, 
1989) (order); College Retirement Equities Fund, et al., Investment 
Co. Rel. Nos. 17861 (Nov. 20, 1990) (notice) and 17906 (Dec. 19, 
1990) (order), Order Denying Requests For a Hearing and Granting 
Application; College Retirement Equities Fund, et al., Investment 
Co. Act Rel. No. 19463 (May 6, 1993) and Order Granting Exemptions 
and Approval: College Retirement Equities Fund, et al., Investment 
Co. Act Rel. No. 19645 (Aug. 19, 1993) (``CREF 12b-1 Order'') 
(collectively ``Prior CREF Orders'').
    \5\ See CREF 12b-1 Order.
    \6\ Applicants are not seeking to amend any of the Prior CREF 
Orders, and represent that they would be able to rely on the 
exemptive relief requested herein consistent with the Prior CREF 
Orders. Applicants are not seeking any additional exemptive relief 
from section 12(b) of the Act. All references to NASD Conduct Rule 
2830 include any successor or replacement rule that may be adopted 
by the Financial Industry Regulatory Authority.
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    7. Applicants will comply with the same conditions as provided in 
rule 18f-3 under the Act with respect to board composition and 
approval, voting rights, method for allocating expenses and conversions 
and exchanges. Applicants also represent that CREF will disclose in its 
prospectus the estimated expenses and other characteristics of each 
class of Units offered for sale by the prospectus, as is required for 
open-end multiple class funds under Form N-1A. CREF will disclose 
expenses borne by clients during the reporting period in annual and 
semi-annual reports as if it were an open-end management investment 
company registered on Form N-1A.

Applicants' Legal Analysis

    1. Section 18(f)(1) of the Act provides, in relevant part, that an 
open-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Section 18(i) of the Act provides that each 
share of stock issued by a registered management investment company 
will be a voting stock and have equal voting rights with every other 
outstanding voting stock.
    2. Applicants state that the creation of multiple classes of Units 
of CREF may be deemed to be prohibited by section 18(f)(1) and to 
violate section 18(i) of the Act because (a) clients holding different 
classes of Units may pay different Covered Expenses, and (b) each class 
would be entitled to exclusive voting rights with respect to matters 
solely related to that class.
    3. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule under the Act, if and to the extent such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicants request an exemption under section 
6(c) from sections 18(f)(1) and 18(i) to the extent that the proposed 
issuance and sale of multiple classes of Units of CREF with varying 
Covered Expenses may be deemed: (1) To result in the issuance of a 
``senior security'' within the meaning of section 18(g) of the Act and 
thus be prohibited by section 18(f)(1); and (2) to violate the equal 
voting provisions of section 18(i) of the Act.
    4. Applicants represent that the ability to allocate distribution 
and administrative expenses to the specific classes of clients to which 
they relate is a significant driving force behind CREF's proposal to 
implement the Multiple Class System. Further, applicants assert, CREF 
would benefit from a more flexible, plan-based pricing structure that 
would provide more equitable pricing based on the relative proportion 
of Covered Expenses.
    5. Applicants submit that the proposed allocation of Covered 
Expenses and voting rights relating to the Covered Expenses applicable 
to the classes of Units in CREF is equitable and will not discriminate 
against any group of participants. Applicants believe that the proposed 
Multiple Class System does not raise the concerns underlying section 18 
of the Act to any greater degree than open-end investment companies' 
multiple class structures established pursuant to rule 18f-3 under the 
Act or closed-end investment companies' multiple class structures 
established pursuant to exemptive relief.\7\ Applicants will comply 
with the same conditions as provided in rule 18f-3 with respect to 
board composition and approval, voting rights, methods for allocating 
expenses, conversions and exchanges. CREF and each of its classes, 
moreover, will continue to operate on an at-cost basis which 
significantly reduces the possible conflicts of interests among 
classes. Applicants believe that the requested relief meets the 
standards of section 6(c) of the Act.
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    \7\ See, e.g., Blackstone Alternative Alpha Fund, et al., 
Investment Co. Act Rel. Nos. 30280 (Nov. 26, 2012) (notice) and 
30317 (Dec. 26, 2012) (order) and Permal Hedge Strategies Fund, et 
al., Investment Co. Act Rel. Nos. 30228 (Oct. 9, 2012) (notice) and 
30257 (Nov. 5, 2012) (order).
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. CREF will cause TIAA or its subsidiaries (including the Advisor 
and the Distributor) to provide, or arrange for the provision of, 
investment management, administrative, and distribution services to 
CREF, and each of its classes of Units, at-cost to TIAA and its 
subsidiaries.
    2. CREF will disclose in its prospectus the estimated expenses and 
other characteristics of each class of Units offered for sale by the 
prospectus, as is required for open-end, multiple class funds under 
Form N-1A. CREF will disclose expenses borne by participants during the 
reporting period in annual and semi-annual reports as if it were an 
open-end management investment company registered on Form N-1A.
    3. Each class:
    a. Will have a different arrangement for administrative or 
distribution services or both, and will pay all of the expenses of that 
arrangement;
    b. Will have exclusive voting rights on any matter submitted to 
shareholders that relates solely to its arrangement; and
    c. Will have separate voting rights on any matter submitted to 
shareholders in which the interests of one class differ from the 
interests of any other class.
    4. Income, realized gains and losses, unrealized appreciation and 
depreciation, and expenses not allocated to a particular class under 
the requested order will be allocated based on one of the methods set 
forth by rule 18f-3(c)(1) under the Act.
    5. Applicants may rely on the requested order only upon compliance 
with the requirements of rule 18f-3(d) under the Act.
    6. The Board of CREF will satisfy the fund governance standards 
defined in rule 0-1(a)(7) under the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15029 Filed 6-26-14; 8:45 am]
BILLING CODE 8011-01-P


