Proposed Exemptions; Salomon Brothers Inc.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10288, et al.]

Proposed Exemptions; Salomon Brothers Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restrictions of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and requests for

a hearing should state: (1) The name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing.

ADDRESS: All written comments and request for a hearing (at least three

copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

Attention: Application No. stated in each Notice of Proposed Exemption.

The applications for exemption and the comments received will be

available for public inspection in the Public Documents Room of Pension

and Welfare Benefits Administration, U.S. Department of Labor, Room N-

5507, 200 Constitution Avenue, NW, Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

Salomon Brothers Inc., Located in New York, New York

[Application No. D-10288]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

A. The restrictions of section 406(a)(1)(A) through (D) 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 to any purchase or sale of securities, including options on

securities, between certain affiliates of Salomon Brothers Inc.

(Salomon Bros.) which are foreign broker-dealers or banks (the Foreign

[[Page 53704]]

Affiliates, as defined below) and employee benefit plans (the Plans)

with respect to which the Foreign Affiliates are parties in interest,

provided that the following conditions, and the General Conditions of

Section II, are satisfied:

(1) The Foreign Affiliate customarily purchases and sells

securities for its own account in the ordinary course of its business

as a broker-dealer or bank;

(2) The terms of any transaction are at least as favorable to the

Plan as those the Plan could obtain in a comparable arm's length

transaction with an unrelated party; and

(3) Neither the Foreign Affiliate nor an affiliate thereof has

discretionary authority or control with respect to the investment of

the Plan assets involved in the transaction, or renders investment

advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to

those assets, and the Foreign Affiliate is a party in interest or

disqualified person with respect to the Plan assets involved in the

transaction solely by reason of section 3(14)(B) of the Act or section

4975(e)(2)(B) of the Code, or by reason of a relationship to a person

described in such sections.

B. The restrictions of sections 406(a)(1)(A) through (D) 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

(D) of the Code, shall not apply to any extension of credit to the

Plans by the Foreign Affiliates to permit the settlement of securities

transactions, regardless of whether they are effected on an agency or a

principal basis, or in connection with the writing of options

contracts, provided that the following conditions and the General

Conditions of Section II, are satisfied:

(1) The Foreign Affiliate is not a fiduciary with respect to the

Plan assets involved in the transaction, unless no interest or other

consideration is received by the Foreign Affiliate or an affiliate

thereof, in connection with any extension of credit; and

(2) Any extension of credit would be lawful under the Securities

Exchange Act of 1934 (the 1934 Act) and any rules or regulations

thereunder, if the 1934 Act, rules, or regulations were applicable.

C. The restrictions of section 406(a)(1)(A) through (D) 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 to the lending of securities to the Foreign Affiliates by the

Plans, provided that the following conditions, and the General

Conditions of Section II, are satisfied:

(1) Neither the Foreign Affiliate nor an affiliate thereof has

discretionary authority or control with respect to the investment of

the Plan assets involved in the transaction, or renders investment

advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to

those assets;

(2) The Plan receives from the Foreign Affiliate (by physical

delivery, by book entry in a securities depository, wire transfer, or

similar means) by the close of business on the day the loaned

securities are delivered to the Foreign Affiliate, collateral

consisting of cash, securities issued or guaranteed by the U.S.

Government or its agencies or instrumentalities, irrevocable U.S. bank

letters of credit issued by persons other than the Foreign Affiliate or

an affiliate of the Foreign Affiliate, or any combination thereof. All

collateral shall be in U.S. dollars, or dollar-denominated securities

or bank letters of credit, and shall be held in the United States;

(3) The collateral has, as of the close of business on the

preceding business day, a market value equal to at least 100 percent of

the then market value of the loaned securities (or, in the case of

letters of credit, a stated amount equal to same);

(4) The loan is made pursuant to a written loan agreement (the Loan

Agreement), which may be in the form of a master agreement covering a

series of securities lending transactions, and which contains terms at

least as favorable to the Plan as those the Plan could obtain in a

comparable arm's length transaction with an unrelated party;

(5) In return for lending securities, the Plan either (a) receives

a reasonable fee, which is related to the value of the borrowed

securities and the duration of the loan, or (b) has the opportunity to

derive compensation through the investment of cash collateral. In the

latter case, the Plan may pay a loan rebate or similar fee to the

Foreign Affiliate, if such fee is not greater than what the Plan would

pay in a comparable arm's length transaction with an unrelated party;

(6) The Plan receives at least the equivalent of all distributions

on the borrowed securities made during the term of the loan, including,

but not limited to, cash dividends, interest payments, shares of stock

as a result of stock splits, and rights to purchase additional

securities, that the Plan would have received (net of applicable tax

withholdings) 1 had it remained the record owner of such

securities;

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\1\ The Department notes the applicant's representation that

dividends and other distributions on foreign securities payable to a

lending Plan may be subject to foreign tax withholdings and that the

Foreign Affiliate will always put the Plan back in at least as good

a position as it would have been in had it not loaned the

securities.

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(7) If the market value of the collateral as of the close of

trading on a business day falls below 100 percent of the market value

of the borrowed securities as of the close of trading on that day, the

Foreign Affiliate delivers additional collateral, by the close of the

Plan's business on the following business day, to bring the level of

the collateral back to at least 100 percent. However, if the market

value of the collateral exceeds 100 percent of the market value of the

borrowed securities, the Foreign Affiliate may require the Plan to

return part of the collateral to reduce the level of the collateral to

100 percent;

(8) Before entering into a Loan Agreement, the Foreign Affiliate

furnishes to the independent Plan fiduciary (a) the most recent

available audited statement of the Foreign Affiliate's financial

condition, (b) the most recent available unaudited statement of its

financial condition (if more recent than the audited statement), and

(c) a representation that, at the time the loan is negotiated, there

has been no material adverse change in its financial condition that has

not been disclosed since the date of the most recent financial

statement furnished to the independent Plan fiduciary. Such

representation may be made by the Foreign Affiliate's agreeing that

each loan of securities shall constitute a representation that there

has been no such material adverse change.

(9) The Loan Agreement and/or any securities loan outstanding may

be terminated by the Plan at any time, whereupon the Foreign Affiliate

shall deliver certificates for securities identical to the borrowed

securities (or the equivalent thereof in the event of reorganization,

recapitalization, or merger of the issuer of the borrowed securities)

to the Plan within (a) the customary delivery period for such

securities, (b) five business days, or (c) the time negotiated for such

delivery by the Plan and the Foreign Affiliate, whichever is least;

(10) In the event that the loan is terminated and the Foreign

Affiliate fails to return the borrowed securities, or the equivalent

thereof, within the time described in paragraph 9, the Plan may

purchase securities identical to the borrowed securities (or their

equivalent

[[Page 53705]]

as described above) and may apply the collateral to the payment of the

purchase price, any other obligations of the Foreign Affiliate under

the Loan Agreement, and any expenses associated with the sale and/or

purchase. The Foreign Affiliate is obligated to pay, under the terms of

the Loan Agreement, and does pay, to the Plan the amount of any

remaining obligations and expenses not covered by the collateral, plus

interest at a reasonable rate. Notwithstanding the foregoing, the

Foreign Affiliate may, in the event it fails to return borrowed

securities as described above, replace non-cash collateral with an

amount of cash not less than the then current market value of the

collateral, provided that such replacement is approved by the

independent Plan fiduciary; and

(11) The independent Plan fiduciary maintains the situs of the Loan

Agreement in accordance with the indicia of ownership requirements

under section 404(b) of the Act and the regulations promulgated under

29 CFR 2550.404(b)-1.

If the Foreign Affiliate fails to comply with any condition of the

exemption in the course of engaging in a securities lending

transaction, the Plan fiduciary who caused the Plan to engage in such

transaction shall not be deemed to have caused the Plan to engage in a

transaction prohibited by section 406(a)(1)(A) through (D) of the Act

solely by reason of the Foreign Affiliate's failure to comply with the

conditions of the exemption.

Section II--General Conditions

A. The Foreign Affiliate is a registered broker-dealer or bank

subject to regulation by a governmental agency, as described in Section

III.B, and is in compliance with all applicable rules and regulations

thereof in connection with any transactions covered by this exemption;

B. The Foreign Affiliate, in connection with any transactions

covered by this exemption, is in compliance with the requirements of

Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and

Exchange Commission (S.E.C.) interpretations thereof, providing for

foreign affiliates a limited exemption from U.S. broker-dealer

registration requirements;

C. Prior to any transaction, the Foreign Affiliate enters into a

written agreement with the Plan in which the Foreign Affiliate consents

to the jurisdiction of the courts of the United States for any civil

action or proceeding brought in respect of the subject transactions;

D. The Foreign Affiliate maintains, or causes to be maintained,

within the United States for a period of six years from the date of any

transaction such records as are necessary to enable the persons

described in paragraph E to determine whether the conditions of the

exemption have been met, except that --

(1) a party in interest with respect to a Plan, other than the

Foreign Affiliate, shall not be subject to a civil penalty under

section 502(i) of the Act or the taxes imposed by section 4975 (a) and

(b) of the Code, if such records are not maintained, or not available

for examination, as required by paragraph E; and

(2) a prohibited transaction shall not be deemed to have occurred

if, due to circumstances beyond the Foreign Affiliate's control, such

records are lost or destroyed prior to the end of the six year period;

E. Notwithstanding any provisions of subsections (a)(2) and (b) of

section 504 of the Act, the Foreign Affiliate makes the records

referred to in paragraph (d) unconditionally available during normal

business hours at their customary location to the following persons or

a duly authorized representative thereof: (1) the Department, the

Internal Revenue Service, or the S.E.C.; (2) any fiduciary of a Plan;

(3) any contributing employer to a Plan; (4) any employee organization

any of whose members are covered by a Plan; and (5) any participant or

beneficiary of a Plan. However, none of the persons described in (2)

through (5) of this subsection are authorized to examine the trade

secrets of the Foreign Affiliate or commercial or financial information

which is privileged or confidential.

Section III--Definitions

A. The term ``affiliate'' of another person shall include: (1) any

person directly or indirectly, through one or more intermediaries,

controlling, controlled by, or under common control with such other

person; (2) any officer, director, or partner, employee or relative (as

defined in section 3(15) of the Act) of such other person; and (3) any

corporation or partnership of which such other person is an officer,

director or partner. For purposes of this definition, the term

``control'' means the power to exercise a controlling influence over

the management or policies of a person other than an individual;

B. The term ``Foreign Affiliate'' shall mean an affiliate of

Salomon Brothers Inc. that is subject to regulation as a broker-dealer

or bank by (1) the Ontario Securities Commission and the Investment

Dealers Association in Canada; (2) the Securities and Futures Authority

in the United Kingdom; (3) the Deutsche Bundesbank and the Federal

Banking Supervisory Authority, i.e., der Bundesaufsichtsamt fuer das

Kreditwesen (the BAK) in Germany; or (4) the Ministry of Finance and

the Tokyo Stock Exchange in Japan;

C. The term ``security'' shall include equities, fixed income

securities, options on equity and on fixed income securities,

government obligations, and any other instrument that constitutes a

security under U.S. securities laws. The term ``security'' does not

include swap agreements or other notional principal contracts.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective

as of June 7, 1996.

Summary of Facts and Representations

1. Salomon Bros., a broker-dealer registered with the S.E.C., is a

full-line investment services firm which is a member of the New York

Stock Exchange and other principal securities exchanges in the United

States and a member of the National Association of Securities Dealers.

Salomon Bros. is one of the largest investment services firms in the

United States. Salomon Inc., the parent corporation of Salomon Bros.,

had approximately $194.88 billion in assets and $4.86 billion in

stockholders' equity, as of December 31, 1996.

On November 28, 1997, Salomon Inc., merged with a wholly owned

subsidiary of Travelers Group Inc. (Travelers). Travelers, a

diversified financial services holding company, had approximately $387

billion in assets and $21 billion in stockholders' equity at the time

of the merger. Salomon Inc. was the surviving corporation of this

merger and was renamed Salomon Smith Barney Holdings Inc. (Salomon

Smith Barney). Immediately thereafter, Smith Barney Holdings Inc.,

another wholly owned subsidiary of Travelers, was merged into Salomon

Smith Barney.

Salomon Bros., which will be merged in the future with another

Smith Barney affiliate of Travelers, has several foreign affiliates

which are broker-dealers or banks. Those covered by the proposed

exemption (i.e., the Foreign Affiliates), and their respective

regulating entities, are as follows:

(a) Salomon Bros. Canada Inc., located in Toronto, is subject to

regulation in Canada by the Ontario Securities Commission, as well as

the Investment Dealers Association, a self-regulatory organization.

(b) Salomon Bros. U.K. Limited, Salomon Bros. U.K. Equity Limited,

and Salomon Bros. International Limited, all located in London, are

subject to

[[Page 53706]]

regulation in the United Kingdom by the Securities and Futures

Authority.

(c) Salomon Bros. AG, located in Frankfurt, is subject to

regulation in Germany by the Deutsche Bundesbank and the

Bundesaufsichtsamt fuer das Kreditwesen (i.e., the BAK).

(d) Salomon Bros. Asia Limited branch, located in Tokyo, is subject

to regulation in Japan by the Ministry of Finance and the Tokyo Stock

Exchange.

Salomon Bros. requests an individual exemption to permit the

Foreign Affiliates identified above, as well as those others who, in

the future, may be subject to governmental regulation in Canada, the

United Kingdom, Germany, or Japan, to engage in the securities

transactions described below with employee benefit plans (i.e., the

Plans). The proposed exemption is necessary because the Foreign

Affiliates may be parties in interest with respect to the Plans under

the Act, by virtue of being a fiduciary (for assets of the Plans other

than those involved in the transactions) or a service provider to such

Plans, or by virtue of a relationship to such fiduciary or service

provider.

2. Salomon Bros. represents that the Foreign Affiliates are subject

to regulation by a governmental agency in the foreign country. Salomon

Bros. further represents that registration of a foreign broker-dealer

or bank with the governmental agency in these cases addresses

regulatory concerns similar to those concerns addressed by registration

of a broker-dealer with the S.E.C. under the 1934 Act. The rules and

regulations set forth by the above-referenced agencies and the S.E.C.

share a common objective: the protection of the investor by the

regulation of securities markets.

Canada, the United Kingdom, and Japan all have comprehensive

financial resource and reporting/disclosure rules concerning broker-

dealers. Broker-dealers are required to demonstrate their capital

adequacy. The reporting/disclosure rules impose requirements on broker-

dealers with respect to risk management, internal controls, and records

relating to counterparties. All such records must be produced at the

request of the agency at any time. The agencies' registration

requirements for broker-dealers are enforced by fines and penalties and

thus constitute a comprehensive disciplinary system for the violation

of such rules.

With respect to Germany, the BAK, an independent federal

institution with ultimate responsibility to the Ministry of Finance, in

cooperation with the Deutsche Bundesbank, the central bank of the

German banking system, provides extensive regulation of the banking

sector. The BAK insures that Salomon Bros. AG has procedures for

monitoring and controlling its worldwide activities through various

statutory and regulatory standards, such as requirements regarding

adequate internal controls, oversight, administration and financial

resources. The BAK reviews compliance with these limitations on

operations and internal control requirements through an annual audit

performed by the year-end auditor and through special audits, e.g., on

specific sections of the Banking Act, as ordered by the BAK and the

respective State Central Bank auditors. The BAK obtains information on

the condition of Salomon Bros. AG, and its branches in Tokyo and Milan,

by requiring submission of periodic, consolidated financial reports and

through a mandatory annual report prepared by the auditor. The BAK also

receives information regarding capital adequacy, country risk exposure,

and foreign exchange exposure from Salomon Bros. AG. German banking law

mandates penalties to insure correct reporting to the BAK. The auditors

face penalties for gross violation of their duties in auditing, for

reporting misleading information, omitting essential information from

the audit report, failing to request pertinent information, or failing

to report to the BAK.

Salomon Bros. represents that, in connection with the transactions

covered by this proposed exemption, the Foreign Affiliates' compliance

with any applicable requirements of Rule 15a-6 (17 CFR 240.15a-6) of

the 1934 Act (as discussed further in Paragraph 6, below), and S.E.C.

interpretations thereof, providing for foreign affiliates a limited

exemption from U.S. registration requirements, will offer additional

protections to the Plans.

Principal Transactions

3. Salomon Bros. represents that the Foreign Affiliates operate as

traders in dealers' markets wherein they customarily purchase and sell

securities for their own account in the ordinary course of their

business as broker-dealers or banks and engage in purchases and sales

of securities, including options on securities, with their clients.

Such trades are referred to as principal transactions. Salomon Bros.

represents that the role of a broker-dealer in a principal transaction

in the subject foreign countries is virtually identical to that of a

broker-dealer in a principal transaction in the United States.

Salomon Bros. requests an individual exemption to permit the

Foreign Affiliates to engage in principal transactions with the Plans

under terms and conditions equivalent to those required in Prohibited

Transaction Class Exemption 75-1 (PTCE 75-1, 40 FR 50845, October 31,

1975), Part II.2 Salomon Bros. states that because PTCE 75-1

provides an exemption only for U.S. registered broker-dealers and U.S.

banks, the principal transactions at issue would fall outside the scope

of relief provided by PTCE 75-1.3

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\2\ The Department notes that the proposed principal

transactions are subject to the general fiduciary responsibility

provisions of Part 4 of Title I in the Act. Section 404(a) of the

Act requires, among other things, that a fiduciary of a plan act

prudently and solely in the interest of the plan and its

participants and beneficiaries, when making investment decisions on

behalf of the plan.

\3\ PTCE 75-1, Part II, provides an exemption, under certain

conditions, from section 406(a) of the Act and section 4975(c)(1)(A)

through (D) of the Code, for principal transactions between employee

benefit plans and U.S. registered broker-dealers or U.S. banks that

are parties in interest with respect to such plans.

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4. Salomon Bros. represents that like the U.S. dealer markets,

international equity and debt markets, including the options markets,

are no less dependent on a willingness of dealers to trade as

principals. Over the past decade, Plans have increasingly invested in

foreign equity and debt securities, including debt securities issued by

foreign governments. Thus, Plans seeking to enter into such investments

may wish to increase the number of trading partners available to them

by trading with the Foreign Affiliates.

5. Under the conditions of this proposed exemption, as in PTCE 75-

1, Part II, the Foreign Affiliate must customarily purchase and sell

securities for its own account in the ordinary course of its business

as a broker-dealer or bank. The terms of any principal transaction will

be at least as favorable to the Plan as those the Plan could obtain in

a comparable arm's length transaction with an unrelated party. Neither

the Foreign Affiliate nor an affiliate thereof will have discretionary

authority or control with respect to the investment of the Plan assets

involved in the principal transaction, or render investment advice

(within the meaning of 29 CFR 2510.3-21(c)) with respect to those

assets. In addition, the Foreign Affiliate will be a party in interest

or disqualified person with respect to the Plan assets involved in the

principal transaction solely by reason of section 3(14)(B) of the Act

or section 4975(e)(2)(B) of the Code (i.e., a service provider to the

Plan), or by reason of a relationship to such a person as described in

such sections.

6. Salomon Bros. represents that Rule 15a-6 of the 1934 Act

provides an exemption from U.S. registration

[[Page 53707]]

requirements for a foreign broker-dealer that induces or attempts to

induce the purchase or sale of any security (including over-the-counter

equity and debt options) by a ``U.S. institutional investor'' or a

``U.S. major institutional investor,'' provided that the foreign

broker-dealer, among other things, enters into these principal

transactions through a U.S. registered broker or dealer intermediary.

The term ``U.S. institutional investor,'' as defined in Rule 15a-

6(b)(7), includes an employee benefit plan within the meaning of the

Act if:

(a) The investment decision is made by a plan fiduciary, as defined

in section 3(21) of the Act, which is either a bank, savings and loan

association, insurance company or registered investment adviser, or

(b) The employee benefit plan has total assets in excess of $5

million, or

(c) The employee benefit plan is a self-directed plan with

investment decisions made solely by persons that are ``accredited

investors,'' as defined in Rule 501(a)(1) of Regulation D of the

Securities Act of 1933, as amended.

The term ``U.S. major institutional investor,'' as defined in Rule

15a-6(b)(4), includes a U.S. institutional investor that has total

assets in excess of $100 million. Salomon Bros. represents that the

intermediation of the U.S. registered broker or dealer imposes upon the

foreign broker-dealer the requirement that the securities transaction

be effected in accordance with a number of U.S. securities laws and

regulations applicable to U.S. registered broker-dealers.

Salomon Bros. represents that under Rule 15a-6, a foreign broker-

dealer that induces or attempts to induce the purchase or sale of any

security by a U.S. institutional or major institutional investor in

accordance with Rule 15a-6 must, among other things:

(a) Provide written consent to service of process for any civil

action brought by or proceeding before the S.E.C. or a self-regulatory

organization;

(b) Provide the S.E.C. with any information or documents within its

possession, custody or control, any testimony of foreign associated

persons, and any assistance in taking the evidence of other persons,

wherever located, that the S.E.C. requests and that relates to

transactions effected pursuant to the Rule;

(c) Rely on the U.S. registered broker or dealer through which the

principal transactions with the U.S. institutional and major

institutional investors are effected, among other things, for:

(1) effecting the transactions, other than negotiating their terms;

(2) issuing all required confirmations and statements;

(3) as between the foreign broker-dealer and the U.S. registered

broker or dealer, extending or arranging for the extension of any

credit in connection with the transactions;

(4) maintaining required books and records relating to the

transactions, including those required by Rules 17a-3 (Records to be

Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by

Certain Exchange Members, Brokers and Dealers) of the 1934 Act;

4

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\4\ Salomon Bros. represents that all such requirements relating

to record-keeping of principal transactions would be applicable to

any Foreign Affiliate in a transaction that would be covered by this

proposed exemption.

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(5) receiving, delivering, and safeguarding funds and securities in

connection with the transactions on behalf of the U.S. institutional

investor or U.S. major institutional investor in compliance with Rule

15c3-3 (Customer Protection--Reserves and Custody of Securities) of the

1934 Act; and

(6) Participating in all oral communications (e.g., telephone

calls) between the foreign associated person and the U.S. institutional

investor, other than a U.S. major institutional investor.

Extensions of Credit

7. Salomon Bros. represents that a normal part of the execution of

securities transactions by broker-dealers on behalf of clients,

including employee benefit plans, is the extension of credit to clients

so as to permit the settlement of transactions in the customary three-

day settlement period. Such extensions of credit are also customary in

connection with the writing of option contracts.

Salomon Bros. requests that the proposed exemption include relief

for extensions of credit to the Plans by the Foreign Affiliates in the

ordinary course of their purchases or sales of securities, regardless

of whether they are effected on an agency or a principal basis, or in

connection with the writing of options contracts. In this regard, an

exemption for such extensions of credit is provided under PTCE 75-1,

Part V, only for transactions between plans and U.S. registered broker-

dealers and U.S. banks.5

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\5\ PTCE 75-1, Part V, provides an exemption, under certain

conditions, from section 406 of the Act and section 4975(c)(1) of

the Code, for extensions of credit, in connection with the purchase

or sale of securities, between employee benefit plans and U.S.

registered broker-dealers or U.S. banks that are parties in interest

with respect to such plans.

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8. Under the conditions of this proposed exemption, as in PTCE 75-

1, Part V, the Foreign Affiliate may not be a fiduciary with respect to

the Plan assets involved in the transaction. However, an exception to

such condition would be provided herein, as in PTCE 75-1, if no

interest or other consideration is received by the Foreign Affiliate or

an affiliate thereof, in connection with any such extension of credit.

In addition, the extension of credit must be lawful under the 1934 Act

and any rules or regulations thereunder, if the 1934 Act rules or

regulations were applicable. If the 1934 Act would not be applicable,

the extension of credit must still be lawful under applicable foreign

law, in the country where the particular Foreign Affiliate is

domiciled.

Securities Lending

9. The Foreign Affiliates, acting as principals, actively engage in

the borrowing and lending of securities, typically foreign securities,

from various institutional investors, including employee benefit plans.

Salomon Bros. requests an exemption for securities lending

transactions between the Foreign Affiliates and the Plans under terms

and conditions equivalent to those required in Prohibited Transaction

Class Exemption 81-6 (PTCE 81-6, 46 FR 7527, January 23, 1981, as

amended at 52 FR 18754, May 19, 1987).6 Because PTCE 81-6

provides an exemption only for U.S. registered broker-dealers and U.S.

banks, the securities lending transactions at issue would fall outside

the scope of relief provided by PTCE 81-6.

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\6\ PTCE 81-6 provides an exemption under certain conditions

from section 406(a)(1)(A) through (D) of the Act and the

corresponding provisions of section 4975(c) of the Code for the

lending of securities that are assets of an employee benefit plan to

U.S. registered broker-dealers and U.S. banks that are parties in

interest with respect to such plans.

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

10. The Foreign Affiliates utilize borrowed securities either to

satisfy their own trading requirements or to re-lend to other broker-

dealers and entities which need a particular security for a certain

period of time. As described in the Federal Reserve Board's Regulation

T, borrowed securities are often used to meet delivery obligations in

the case of short sales or the failure to receive securities that a

broker-dealer is required to deliver. Salomon Bros. represents that

foreign broker-dealers are those broker-dealers most likely to seek to

borrow foreign securities. Thus, the requested exemption will increase

the lending demand for such securities, providing the Plans with

increased securities lending opportunities, which will earn such Plans

additional rates of

[[Page 53708]]

return on the borrowed securities (as discussed below).

11. An institutional investor, such as a pension fund, lends

securities in its portfolio to a broker-dealer or bank in order to earn

a fee while continuing to enjoy the benefits of owning the securities,

(e.g., from the receipt of any interest, dividends, or other

distributions due on those securities and from any appreciation in the

value of the securities). The lender generally requires that the

securities loan be fully collateralized, and the collateral usually is

in the form of cash, irrevocable bank letters of credit, or high

quality liquid securities, such as U.S. Government or Federal Agency

obligations.

12. With respect to the subject securities lending transactions,

neither the Foreign Affiliate nor an affiliate of the Foreign Affiliate

will have discretionary authority or control with respect to the

investment of the Plan assets involved in the transaction, or render

investment advice (within the meaning of 29 CFR 2510.3-21(c)) with

respect to those assets.

13. By the close of business on the day the loaned securities are

delivered, the Plan will receive from the Foreign Affiliate (by

physical delivery, book entry in a securities depository, wire

transfer, or similar means) collateral consisting of cash, securities

issued or guaranteed by the U.S. Government or its agencies or

instrumentalities, irrevocable U.S. bank letters of credit issued by

persons other than the Foreign Affiliate or an affiliate of the Foreign

Affiliate, or any combination thereof. All collateral will be in U.S.

dollars, or dollar-denominated securities or bank letters of credit,

and will be held in the United States. The collateral will have, as of

the close of business on the business day preceding the day it is

posted by the Foreign Affiliate, a market value equal to at least 100

percent of the then market value of the loaned securities (or, in the

case of letters of credit, a stated amount equal to same).

14. The loan will be made pursuant to a written Loan Agreement,

which may be in the form of a master agreement covering a series of

securities lending transactions between the Plan and the Foreign

Affiliate. The terms of the Loan Agreement will be at least as

favorable to the Plan as those the Plan could obtain in a comparable

arm's length transaction with an unrelated party. The Loan Agreement

will also contain a requirement that the Foreign Affiliate pay all

transfer fees and transfer taxes relating to the securities loans.

15. In return for lending securities, the Plan will either (a)

receive a reasonable fee, which is related to the value of the borrowed

securities and the duration of the loan, or (b) have the opportunity to

derive compensation through the investment of cash collateral. In the

latter case, the Plan may pay a loan rebate or similar fee to the

Foreign Affiliate, if such fee is not greater than what the Plan would

pay in a comparable arm's length transaction with an unrelated party.

Earnings generated by non-cash collateral will be returned to the

Foreign Affiliate. The Plan will be entitled to at least the equivalent

of all distributions on the borrowed securities made during the term of

the loan. Such distributions will include cash dividends, interest

payments, shares of stock as a result of stock splits, and rights to

purchase additional securities, that the Plan would have received (net

of any applicable tax withholdings) had it remained the record owner of

such securities.

16. If the market value of the collateral as of the close of

trading on a business day falls below 100 percent of the market value

of the borrowed securities as of the close of trading on that day, the

Foreign Affiliate will deliver additional collateral, by the close of

the Plan's business on the following business day, to bring the level

of the collateral back to at least 100 percent. However, if the market

value of the collateral exceeds 100 percent of the market value of the

borrowed securities, the Foreign Affiliate may require the Plan to

return part of the collateral to reduce the level of the collateral to

100 percent.

17. Before entering into a Loan Agreement, the Foreign Affiliate

will furnish to the independent Plan fiduciary (a) the most recent

available audited statement of the Foreign Affiliate's financial

condition, (b) the most recent available unaudited statement of its

financial condition (if more recent than the audited statement), and

(c) a representation that, at the time the loan is negotiated, there

has been no material adverse change in its financial condition that has

not been disclosed since the date of the most recent financial

statement furnished to the independent Plan fiduciary. Such

representation may be made by the Foreign Affiliate's agreeing that

each loan of securities shall constitute a representation that there

has been no such material adverse change.

18. The Loan Agreement and/or any securities loan outstanding may

be terminated by the Plan at any time, whereupon the Foreign Affiliate

will deliver certificates for securities identical to the borrowed

securities (or the equivalent thereof in the event of reorganization,

recapitalization, or merger of the issuer of the borrowed securities)

to the Plan within (a) the customary delivery period for such

securities, (b) five business days, or (c) the time negotiated for such

delivery by the Plan and the Foreign Affiliate, whichever is least. In

the event that the Foreign Affiliate fails to return the securities, or

the equivalent thereof, within the designated time, the Plan will have

certain rights under the Loan Agreement to realize upon the collateral.

The Plan may purchase securities identical to the borrowed securities,

or the equivalent thereof, and may apply the collateral to the payment

of the purchase price, any other obligations of the Foreign Affiliate

under the Loan Agreement, and any expenses associated with replacing

the borrowed securities. The Foreign Affiliate is obligated to pay to

the Plan the amount of any remaining obligations and expenses not

covered by the collateral, plus interest at a reasonable rate as

determined in accordance with an independent market source.

Notwithstanding the foregoing, the Foreign Affiliate may, in the event

it fails to return borrowed securities as described above, replace non-

cash collateral with an amount of cash not less than the then current

market value of the collateral, provided that such replacement is

approved by the independent Plan fiduciary.

19. The independent Plan fiduciary will maintain the situs of the

Loan Agreement in accordance with the indicia of ownership requirements

under section 404(b) of the Act 7 and the regulations

promulgated under 29 CFR 2550.404(b)-1.

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

\7\ Section 404(b) of the Act states that no fiduciary may

maintain the indicia of ownership of any assets of a plan outside

the jurisdiction of the district courts of the United States, except

as authorized by regulation by the Secretary of Labor.

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

20. In summary, the applicant represents that the subject

transactions will satisfy the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons:

(a) With respect to the principal transactions effected by the

Foreign Affiliates, the proposed exemption will enable the Plans to

realize the same benefits of efficiency and convenience which such

Plans could derive from principal transactions with U.S. registered

broker-dealers or U.S. banks, pursuant to PTCE 75-1, Part II;

(b) With respect to extensions of credit in connection with

purchases or sales of securities, the proposed exemption will enable

the Foreign Affiliates and the Plans to extend credit in the ordinary

course of the Foreign

[[Page 53709]]

Affiliate's business to effect agency or principal transactions within

the customary three-day settlement period, or in connection with the

writing of option contracts, for transactions between plans and U.S.

registered broker-dealers or U.S. banks, pursuant to PTCE 75-1, Part V;

(c) With respect to securities lending transactions effected by the

Foreign Affiliates, the proposed exemption will enable the Plans to

realize a low-risk return on securities that otherwise would remain

idle, as in securities lending transactions between plans and U.S.

registered broker-dealers or U.S. banks, pursuant to PTCE 81-6; and

(d) The proposed exemption will provide the Plans with virtually

the same protections as those provided by PTCE 75-1 and PTCE 81-6.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Citizens Bank New Hampshire Located in Manchester, New Hampshire

[Application No. D-10352]

Proposed Exemption

Based on the facts and representations set forth in the

application, the Department is considering granting an exemption under

the authority of section 408(a) of the Act and section 4975(c)(2) of

the Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Exemption for In-Kind Transfers of CIF Assets

If this exemption is granted, the restrictions of sections 406(a)

and 406(b) of ERISA and the sanctions resulting from the application of

section 4975 of the Code, by reason of section 4975(c)(1)(A) through

(F) of the Code, shall not apply, effective October 11, 1996, to the

past in-kind transfer of assets of employee benefit plans (the Client

Plans) for which Citizens Bank New Hampshire (the Bank) serves as

fiduciary, other than plans established and maintained by the Bank,

that are held in a portfolio of a collective investment fund maintained

by the Bank (the CIF), in exchange for shares of the Berger/BIAM

International Institutional Fund (the B/B Fund), an open-end investment

company registered under the Investment Company Act of 1940 (the 1940

Act), the investment adviser and investment sub-adviser of which are

BBOI Worldwide LLC (BBOI) and Bank of Ireland Asset Management Limited

(BIAM), respectively, which are related to the Bank; provided the

following conditions and the general conditions of Section III below

are met:

(A) No sales commissions or other fees were paid by the Client

Plans in connection with the purchase of B/B Fund shares through the

in-kind transfer of CIF assets and no redemption fees are paid in

connection with the sale of such shares by the Client Plans to the B/B

Fund;

(B) Each Client Plan received shares of the B/B Fund which had a

total net asset value that is equal to the value of the Client Plans'

pro rata share of the assets of the CIF on the date of the transfer, as

determined in a single valuation performed in the same manner at the

close of the same business day, using an independent source in

accordance with Rule 17a-7(b) issued by the Securities and Exchange

Commission under the 1940 Act and the procedures established by the B/B

Fund pursuant to Rule 17a-7(b) for the valuation of such assets. Such

procedures must require that all securities for which a current market

price cannot be obtained by reference to the last sale price for

transactions reported on a recognized securities exchange or NASDAQ be

valued based on the current market value of the assets of the CIF, as

objectively determined by an independent principal pricing service (the

Principal Pricing Service).

(C) A second fiduciary who is independent of and unrelated to the

Bank (the Second Fiduciary) received advance written notice of the in-

kind transfer of assets of the CIF and full written disclosure of

information concerning the B/B Fund and, on the basis of such

information, authorized in writing the in-kind transfer of the Client

Plan's CIF assets to the B/B Fund in exchange for shares of the B/B

Fund. The full written disclosure referred to in this paragraph (C) of

Section I included the following information:

(1) A current prospectus for the B/B Fund;

(2) A description of the fees for investment advisory or similar

services that are to be paid (directly or indirectly) by the B/B Fund

to BBOI and BIAM, the fees paid to the Bank for Secondary Services, as

defined in Section IV below, and all other fees to be charged to or

paid by the Client Plan and the B/B Fund directly or indirectly to

BBOI, BIAM, the Bank, or unrelated third parties, including the nature

and extent of any differential between the rates of the fees;

(3) The reasons for the Bank's determination that the Client Plan's

investment in the B/B Fund is appropriate;

(4) A statement describing whether there are any limitations

applicable to the Bank with respect to which assets of the Client Plan

may be invested in the B/B Fund and, if so, the nature of such

limitations;

(D) On the basis of the information described in paragraph (C) of

this Section III, the Second Fiduciary authorized in writing the

investment of assets of the Client Plans in shares of the Fund and the

fees received by the Advisers in connection with their services to the

B/B Fund. Such authorization by the Second Fiduciary is consistent with

the responsibilities, obligations, and duties imposed on fiduciaries by

Part 4 of Title I of the Act;

(D) The Bank sent by regular mail to the Second Fiduciary no later

than 150 days after the completion of the transfer a written

confirmation that contained the following information:

(a) the identity of each security that was valued for purposes of

the transaction in accordance with Rule 17a-7(b)(4);

(b) the price of each such security involved in the transaction;

(c) the identity of the pricing service consulted in determining

the value of such securities;

(d) the number of CIF units held by the Client Plan immediately

before the transfer, the related per-unit value, and the total dollar

amount of such CIF units; and

(e) the numbers of shares in the B/B Fund that are held by the

Client Plan following the transfer, the related per-share net asset

value, and the total dollar amount of such shares.

(E) The Bank did not and will not receive any fees payable pursuant

to Rule 12b-1 under the 1940 Act in connection with the transactions.

(F) On an ongoing basis, for the duration of a Client Plan's

investment in the B/B Fund, the Bank provides the Second Fiduciary with

the following information:

(1) At least annually, a copy of an updated prospectus of the B/B

Fund; and

(2) Upon request, a report or statement containing a description of

all fees paid to the Bank, BBOI, BIAM, and their affiliates by the B/B

Fund and the Berger/BIAM International Portfolio, the master fund with

respect to the B/B Fund pursuant to a ``master/feeder'' structure.

(G) Neither the Bank nor the Advisers nor any affiliate thereof,

including any officer or director thereof, purchases shares of the B/B

Fund from any of the Client Plans for its own account or sells shares

of the B/B Fund to any of the Client Plans from its own account.

[[Page 53710]]

(H) The requirements of Section II of this exemption are met with

respect to all arrangements under which investment advisory fees are

paid by Client Plans to the Bank and any other party in interest with

respect to the Client Plans in connection with Client Plan assets

invested in the B/B Fund.

Section II--Exemption for Receipt of Fees from Funds

The restrictions of section 406(a) of the Act and section 406(b) of

the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1)(D) through (F) of the

Code, shall not apply, effective October 11, 1996, to the receipt of

fees from the B/B Fund and/or the B/B Portfolio by the Bank, BBOI

Worldwide LLC (BBOI) and Bank of Ireland Asset Management (U.S.)

Limited (BIAM; collectively, the Advisers) for acting as the investment

adviser, subadviser, custodian, subadministrator, or provider of other

services which are not investment advisory services (Secondary

Services) for the B/B Fund in connection with the investment in the B/B

Fund by employee benefit plans (the Client Plans) for which the Bank

acts as a fiduciary, provided the following conditions and the general

conditions of Section III below are met:

(A) No sales commissions are paid by the Client Plans in connection

with purchases or sales of shares of the B/B Fund and no redemption

fees are paid in connection with the sale of such shares by the Client

Plans to the B/B Fund;

(B) The price paid or received by the Client Plans for shares in

the B/B Fund is the net asset value per share, as defined in paragraph

(E) of Section IV, at the time of the transaction and is the same price

which would have been paid or received for the shares by any other

investor at that time;

(C) Neither the Advisers nor the Bank nor an affiliate thereof,

including any officer or director thereof, purchases from or sells to

any of the Client Plans shares of the B/B Fund or the B/B Portfolio;

(D) As to each individual Plan, the combined total of all fees

received by the Advisers for the provision of services to the Plan, and

in connection with the provision of services to the B/B Fund and the B/

B Portfolio with respect to the Plan's investment in the B/B Fund, is

not in excess of ``reasonable compensation'' within the meaning of

section 408(b)(2) of the Act;

(E) The Advisers do not receive any fees payable pursuant to Rule

12b-1 under the 1940 Act in connection with the transactions;

(F) The Client Plans are not sponsored by the Advisers;

(G) A Second Fiduciary who is acting on behalf of each Plan and who

is independent of and unrelated to the Advisers, as defined in

paragraph (H) of Section IV below, receives in advance of the

investment by the Plan in the B/B Fund a full and detailed written

disclosure of information concerning the B/B Fund (including, but not

limited to, a current prospectus for the B/B Fund in which such Plan's

assets will be invested and a statement describing the fee structure

and, upon request by the Second Fiduciary, a copy of the proposed

exemption and/or a copy of the final exemption, once such documents

become available);

(H) On the basis of the information described in paragraph (G) of

this Section II, the Second Fiduciary authorizes in writing the

investment of assets of the Client Plans in shares of the Fund and the

fees received by the Advisers in connection with their services to the

B/B Fund. Such authorization by the Second Fiduciary will be consistent

with the responsibilities, obligations, and duties imposed on

fiduciaries by Part 4 of Title I of the Act;

(I) The authorization described in paragraph (H) of this Section II

is terminable at will by the Second Fiduciary of a Plan, without

penalty to such Plan. Such termination will be effected within one

business day following receipt by the Bank, either by mail, hand

delivery, facsimile, or other available means at the option of the

Second Fiduciary, of written notice of termination; provided that if,

due to circumstances beyond the control of the Bank, the sale cannot be

executed within one business day, the Bank shall have one additional

business day to complete such redemption;

(J) Client Plans do not pay any Plan-level investment management

fees, investment advisory fees, or similar fees to the Bank with

respect to any of the assets of such Client Plans which are invested in

shares of the B/B Fund. This condition does not preclude the payment of

investment advisory fees or similar fees by the B/B Fund or the B/B

Portfolio to the Advisers under the terms of an investment advisory

agreement adopted in accordance with section 15 of the 1940 Act or

other agreement between the Advisers and the B/B Fund or the B/B

Portfolio;

(K) In the event of an increase in the rate of any fees paid by the

B/B Fund or the B/B Portfolio to any of the Advisers regarding any

investment management services, investment advisory services, or fees

for other services that any of the Advisers provide to the B/B Fund or

the B/B Portfolio over an existing rate for such services that had been

authorized by a Second Fiduciary, in accordance with paragraph (H) of

this Section II, the Second Fiduciary is provided, at least 30 days in

advance of the implementation of such increase, a written notice (which

may take the form of a proxy statement, letter or similar communication

that is separate from the prospectus of the B/B Fund and which explains

the nature and amount of the increase in fees), and approves in writing

the continued holding of B/B Fund shares acquired prior to such change

(Such approval may be limited solely to the investment advisory and

other fees paid by the BB/Fund in relation to the fees paid by the plan

and need not relate to any other aspects of such investment);

(L) With respect to the B/B Fund, the Bank will provide the Second

Fiduciary of each Plan:

(a) At least annually with a copy of an updated prospectus of the

B/B Fund and the B/B Portfolio; and

(b) Upon the request of such Second Fiduciary, with a report or

statement (which may take the form of the most recent financial report,

the current statement of additional information, or some other written

statement) which contains a description of all fees paid by the B/B

Fund and the B/B Portfolio to the Advisers;

(M) All dealings between the Client Plans and the B/B Fund are on a

basis no less favorable to such Client Plans than dealings between the

Funds and other shareholders holding the same class of shares as the

Client Plans.

Section III--General Conditions

(A) The Bank maintains for a period of six years the records

necessary to enable the persons described below in paragraph (B) to

determine whether the conditions of this exemption have been met,

except that (1) a prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of the Bank, the

records are lost or destroyed prior to the end of the six-year period,

and (2) no party in interest other than the Bank shall be subject to

the civil penalty that may be assessed under section 502(i) of the Act

or to the taxes imposed by section 4975(a) and (b) of the Code if the

records are not maintained or are not available for examination as

required by paragraph (B) below.

(B)(1) Except as provided in paragraph (B)(2) and notwithstanding

[[Page 53711]]

any provisions of section 504(a)(2) and (b) of the Act, the records

referred to in paragraph (A) are unconditionally available at their

customary location for examination during normal business hours by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service,

(ii) Any fiduciary of a Client Plan who has authority to acquire or

dispose of shares of the B/B Fund owned by the Client Plan, or any duly

authorized employee or representative of such fiduciary, and

(iii) Any participant or beneficiary of a Client Plan or duly

authorized employee or representative of such participant or

beneficiary;

(2) None of the persons described in paragraph (B)(1)(ii) and (iii)

shall be authorized to examine trade secrets of the Advisers, or

commercial or financial information which is privileged or

confidential.

Section IV--Definitions

For purposes of this exemption:

(A)(1) The term ``Bank'' means Citizens Bank New Hampshire;

(2) The term ``BIAM'' means Bank of Ireland Asset Management;

(3) The term ``BBOI'' means BBOI Worldwide LLC;

(B) An ``affiliate'' of a person includes:

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with the person;

(2) Any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(C) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(D)(1) The terms ``Fund'' and ``B/B Fund'' mean the Berger/BIAM

International Institutional Fund, an open-end investment company

registered under the 1940 Act, one of a series of investment portfolios

which are distinct investment vehicles referred to as ``feeder'' funds,

with respect to which BBOI and BIAM may provide Secondary Services.

(2) The terms ``Portfolio'' and ``B/B Portfolio'' mean the Berger/

BIAM International Portfolio, an open-end investment company registered

under the 1940 Act, the master fund with respect to the B/B Fund

pursuant to a ``master/feeder'' arrangement, with respect to which BBOI

and BIAM serve as investment adviser and investment sub-adviser,

respectively.

(E) The term ``net asset value'' means the amount for purposes of

pricing all purchases, sales and redemptions of shares of the Berger/

BIAM International Institutional Fund (the B/B Fund) calculated by

dividing the total value of such Fund's assets, determined by a method

set forth in the B/B Fund's prospectus and statement of additional

information, less the liabilities chargeable to the B/B Fund, by the

number of outstanding shares.

(F) The term ``Principal Pricing Service'' means an independent,

recognized pricing service that has determined the aggregate dollar

value of marketable securities involved in the transfer of CIF assets.

(G) The term ``relative'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or sister.

(H) The term ``Second Fiduciary'' means a fiduciary of a Plan who

is independent of and unrelated to the Bank, BIAM and BBOI. For

purposes of this exemption, the Second Fiduciary will not be deemed to

be independent of and unrelated to the Bank, BIAM and BBOI if:

(1) Such Second Fiduciary directly or indirectly controls, is

controlled by, or is under common control with the Bank, BIAM or BBOI;

(2) Such Second Fiduciary, or any officer, director, partner,

employee, or relative of such Second Fiduciary, is an officer,

director, partner or employee of the Bank, BIAM or BBOI (or is a

relative of such persons); or

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration for his or her own personal account

in connection with any transaction described in this proposed

exemption.

If an officer, director, partner or employee of the Bank, BIAM or BBOI

(or relative of such persons) is a director of such Second Fiduciary,

and if he or she abstains from participation in the choice of a Plan's

investment adviser, the approval of any such purchase or sale between a

Plan and the B/B Fund, the approval of any change of fees charged to or

paid by the Plan, the B/B Fund or the B/B Portfolio, and the

transactions described in Sections I and II above, then paragraph

(H)(2) of this section shall not apply.

(I) The term ``Secondary Service'' means a service, other than

investment advisory or similar service, which is provided by the Bank,

BIAM or BBOI to the B/B Fund.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

October 11, 1996.

Summary of Facts and Representations

1. The Bank, formerly named First NH Bank and the successor by

merger to First NH Investment Services Corp., is a New Hampshire

guaranty savings bank with its principal offices in Manchester, New

Hampshire. The Bank is wholly owned by Citizens Financial Group, Inc.,

which is 23\1/2\ percent owned by the Bank of Ireland (BI), a publicly

traded, diversified financial services group managing assets in excess

of $16 billion worldwide. The Bank represents that it serves a number

of employee benefit plan clients (the Plans) in the capacity of

trustee, investment adviser, and/or custodian. At least a portion of

the assets of the Plans are invested in the NH Pooled Employee Benefit

Trust (the CIF), a collective investment fund organized as a group

trust pursuant to Internal Revenue Service Revenue Ruling 81-100 (1981-

1 C.B. 326) established and trusteed by the Bank. One of the investment

portfolios of the CIF is the First International Equity Fund (the FIEF

Portfolio), which is the subject of this proposed exemption. As of

August 31, 1996, the Bank had approximately $6 million of Plans assets

under management in the FIEF Portfolio. The Bank is the investment

adviser of the FIEF Portfolio, and the sub-adviser is Bank of Ireland

Asset Management (U.S.) Limited (BIAM), which is a second-tier

subsidiary of BI.

2. The Bank represents that in some cases it has full or joint

investment discretion over the assets of a Plan, and in other cases the

Plan's participants direct the Bank as to which portfolios in the CIF

their accounts are to be invested in. With respect to some Plans for

which the Bank holds investment discretion, the Bank has chosen to

invest a portion of such Plans' assets in the FIEF Portfolio. With

respect to Plans providing for participant-directed investment of

individual accounts, some participants in the Plans have chosen to

direct the Bank to invest a portion of their accounts in the FIEF

Portfolio. The Bank states that in either case it is more than merely a

nondiscretionary fiduciary of the Plan since it has responsibility for

the management of the Plan's assets that are invested in the FIEF

Portfolio (hereinafter, Plans with assets invested in the FIEF

Portfolio are referred to as Client Plans). As investment sub-adviser

to the FIEF

[[Page 53712]]

Portfolio, BIAM is also a fiduciary with respect to Client Plans.

3. The B/B Fund is the Berger/BIAM International Institutional

Fund, a no-load, open-end management investment company organized as a

diversified series of a trust known as the Berger/BIAM Worldwide Funds

Trust. The B/B Fund invests all of its assets which are available for

investment in the Berger/BIAM International Portfolio (the B/B

Portfolio) as part of a so-called ``master-feeder'' structure, under

which the B/B Portfolio is the master fund and the B/B Fund is the

feeder fund. The B/B Portfolio is an open-end management investment

company organized as a diversified series of a trust known as the

Berger/BIAM Worldwide Portfolios Trust. The investment adviser of the

B/B Portfolio is BBOI Worldwide LLC, which is 50 percent owned by a

wholly-owned subsidiary of BI. The investment sub-adviser of the B/B

Portfolio is Bank of Ireland Asset Management (BIAM), a wholly-owned

subsidiary of BI.8

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\8\ The Bank represents that a master-feeder structure is a two-

tiered fund structure in which all the assets of two or more feeder

funds are invested in a single master fund, which has an identical

investment objective and identical policies and limitations as the

investing feeder funds. Shares of the feeder funds are offered to

investors in the target market for which the feeder fund and its fee

structure are designed (for example, the retail market or the

institutional market). Interests in the master fund are sold only to

feeder funds. Feeder funds may be mutual funds, bank collective

trusts or common trusts, or other types of investing entities.

Advisory services are rendered at the master level, while

shareholder services and administrative services are rendered

largely at the feeder level. In this regard, the Bank represents

that the fees paid at the master fund and feeder fund levels are

paid for separate, specific services provided to the respective

fund, and that any such payment does not result in the double

payment of fee for the same service by any shareholder. The Bank

represents that the master-feeder structure is aimed at achieving

economies of scale and lower overall expense ratios not generally

achievable in a traditional, single-tier structure.

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4. The Bank represents that it determined in 1996 to convert the

FIEF Portfolio into shares of the B/B Fund. In this regard, on October

11, 1996, the Bank accomplished this conversion by means of the in-kind

transfer of Client Plans' assets to the B/B Fund in exchange for the

Client Plans' receipt of shares of the B/B Fund. The Bank represents

that it determined to cause the Client Plans to transfer securities to

the B/B Fund, rather than cash, in order to avoid the additional costs

and risks to the Client Plans of disposing of and reacquiring

securities through the open securities markets. For this past in-kind

transfer of Client Plans' assets to the B/B Fund in exchange for shares

of the B/B Fund, the Bank is requesting an exemption under the terms

and conditions described herein.

5. The Bank represents that the Client Plans consist of pension and

profit-sharing plans, including plans with cash or deferred

arrangements under section 401(k) of the Internal Revenue Code of 1986,

as amended (the Code), and that some of the Client Plans are

participant-directed individual account plans. The Bank states that as

a custodian or participant-directed trustee of a plan, it has custody

of the plan's assets and is responsible for collecting all income,

performing bookkeeping and accounting, generating periodic statements

of account activity and other reports, and making payments or

distributions from the plan as directed. When serving as a custodian or

directed trustee, the Bank represents that it has no investment

discretion over the assets involved and no duty to review investments

or make investment recommendations, acting only as directed by plan

participants. However, some participants in such plans have directed

the Bank to invest at least a portion of their accounts in the FIEF

Portfolio. With respect to these Client Plans, the Bank is a fiduciary

with investment discretion over plan assets to the extent the Bank is

investment adviser of the FIEF Portfolio. With respect to plans for

which the Bank serves as a discretionary trustee or investment manager,

the Bank represents that it generally invests the assets of such plans

in the CIF, and within the CIF, the Bank invests some of the assets of

such plans in the FIEF Portfolio.

6. The Bank represents that it determined that it would be in the

best interests and protective of the participants and beneficiaries of

the Client Plans to convert such Plans' interests in the FIEF Portfolio

entirely to shares of the B/B Fund for the following reasons:

(a) As an open-end investment management company, the B/B Fund's

registration with the SEC requires greater participant disclosure than

that required by bank regulators and provides an enhanced mechanism for

review of disclosure documentation;

(b) Sponsors and directing participants of Client Plans will be

able to monitor more easily the performance of their investment since

it is anticipated that information concerning the investment

performance of the B/B Fund will be available in daily newspapers of

general circulation, upon the achievement of certain size requirements;

(c) The B/B Fund will be valued on a daily basis, whereas the FIEF

Portfolio has been valued only monthly. The daily valuation permits (i)

immediate investment of Plan contributions in the B/B Fund, (ii)

greater flexibility in transferring assets from the B/B Fund to another

type of investment, and (iii) daily redemption of investments in the B/

B Fund for purposes of making distributions; and

(d) Unlike investments in the FIEF Portfolio, shares of the B/B

Fund can be given directly to plan participants in benefit

distributions, thus avoiding the expense and delay of liquidating plan

investments and facilitating rollovers into individual retirement

accounts.

7. The Bank represents that the securities held in the FIEF

Portfolio on behalf of the Client Plans were transferred to the B/B

Fund in kind in order to preserve the values of the Client Plans'

interests in the FIEF Portfolio and to avoid potentially large

transaction costs and market risks that would be incurred by the Client

Plans in a total liquidation of the securities and by the B/B Fund in

reacquisition of the securities in the open market. The Bank states

that the conversion of the FIEF Portfolio occurred as follows: After

receipt of the appropriate approvals, discussed below, the Bank

transferred the FIEF Portfolio assets to the B/B Fund, pursuant to an

asset transfer procedure discussed below, and, in exchange, the B/B

Fund transferred to the FIEF Portfolio an appropriate number of shares

of the B/B Fund. The Bank represents that these B/B Fund shares had an

aggregate value equal to the aggregate value of the assets of the FIEF

Portfolio that were transferred. After the transfer, the Bank dissolved

the FIEF Portfolio and distributed the newly-acquired B/B Fund shares

pro rata to the Client Plans.

8. Prior to the conversion of the FIEF Portfolio into shares of the

B/B Fund, the Bank obtained the affirmative written approval of an

independent second fiduciary of each Invested Plan (the Second

Fiduciary), who generally was the Plan's named fiduciary, trustee

(other than the Bank), or sponsoring employer. The Bank provided each

Second Fiduciary with a prospectus for the B/B Fund and a written

statement giving full disclosure of the information required under

Prohibited Transaction Class Exemption 77-4 (PTE 77-4, 42 FR 18732,

April 8, 1977), including an explanation of why the Bank believed that

the investment of a portion of the assets of the Plan in the B/B Fund

was appropriate. On the basis of such information, the proposed

conversion of the Plan's investment in the FIEF Portfolio to investment

in the B/B Fund

[[Page 53713]]

was submitted for approval by the Second Fiduciary.

9. Asset transfer procedure: After the Second Fiduciary of each

Invested Plan approved the Invested Plan's participation in the

conversion of the FIEF Portfolio to shares in the B/B Fund, the asset

transfer procedure began. The transfer occurred on October 11, 1996,

and the following steps constituted the procedure utilized by the Bank

in effecting the conversion:

(A) Shortly prior to the transfer, the assets of the FIEF Portfolio

were reviewed to determine whether they were appropriate investments

for the B/B Fund, consistent with the B/B Fund's investment objective

and policies and the applicable requirements under the Investment

Company Act of 1940 (the 1940 Act) and the Code. Assets that were not

appropriate investments for the B/B Fund were liquidated prior to the

transfer date in the open market, without the involvement of any broker

affiliated with the Bank.

(B) For purposes of the transfer, the values of the FIEF Portfolio

assets were determined on the basis of market values as of the close of

business on the day of the transfer. Values were determined in a single

valuation using the valuation procedures described in Rule 17a-7(b)

under the Investment Company Act (17 CFR Sec. 270.17a-7(b)), as such

rule has been interpreted by the Securities and Exchange Commission.

Specifically, the securities in the FIEF Portfolio were valued as

follows:

(1) The securities valued were ones for which market quotations are

readily available.

(2) The values of the securities were the ``independent current

market prices'' of the securities, as required by Rule 17a-7(b), as of

close of business on the day of the transfer, which was a Friday. The

Bank states that Rule 17a-7(b) specifically defines ``current market

price'' for different types of securities that were in the FIEF

Portfolio:

(a) If the security was a ``reported security'' as defined in Rule

11Aa3-1 under the Securities Exchange Act of 1934 (the 1934 Act), the

last sale price with respect to such security reported in the

consolidated transaction reporting system for that day, or the average

of the highest independent bid and lowest independent offer for such

security (reported pursuant to Rule 11Ac1-1 under the 1934 Act) as of

the close of business on that day if there are no reported transactions

in the consolidated system on that day; or

(b) If the security was not a reported security, and the principal

market for such security is an exchange, then the last sale on such

exchange on that day or the average of the highest independent bid and

lowest independent offer on such exchange as of the close of business

on that day if there are no reported transactions on such exchange on

that day; or

(c) If the security is not a reported security and is quoted in the

NASDAQ system, then the average of the highest independent bid and

lowest independent offer reported on Level 1 of NASDAQ as of the close

of business on that day; 9 or

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\9\ The applicant represents that Level 1 of NASDAQ provides the

best bid-and-ask quotations for each NASDAQ security that has a

minimum of two registered market makers providing quotations. Level

2 provides the current bid-and-ask prices for each market maker in

any available NASDAQ security, not only the best prices. Level 3

allows for market makers instantaneously to insert new quotations

into the system, and is generally only used by market makers and

traders.

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(d) For all other securities, the average of the highest

independent bid and lowest independent offer, as of the close of

business on the same day, determined on the basis of reasonable inquiry

from at least three sources that are either broker-dealers or pricing

services independent of the Bank.

(C) After approval by the Second Fiduciaries of the transfer and

conversion, the securities and cash in the FIEF Portfolio were

transferred to the B/B Fund in exchange for shares of the B/B Fund. The

FIEF Portfolio assets transferred to the B/B Fund were in turn

transferred by the B/B Fund, as a feeder fund, to the B/B Portfolio

master fund. The Bank represents that the in-kind purchase of B/B Fund

shares was effected in accordance with the procedures described in the

prospectus for the B/B Fund, which provide that the securities being

transferred to the B/B Fund need to be eligible for purchase by the B/B

Portfolio (consistent with the investment policies and restrictions of

the B/B Fund and the B/B Portfolio) and must have a readily

ascertainable market value.

(D) The Bank represents that the securities received by the B/B

Fund were valued by the B/B Fund for purposes of the transfer

transaction in the same manner as the assets were valued by the FIEF

Portfolio, and the per-share value of the B/B Fund shares issued were

based on the B/B Fund's then-current net asset value. Accordingly, the

Bank states that the value of a Plan's investment in the B/B Fund as of

the start of business on the Monday following the Friday transfer was

the same as the value of its investment in the FIEF Portfolio as of the

close of business on the Friday of the transfer.

No brokerage commission or other fee or expense was charged to the

FIEF Portfolio or the B/B Fund in the transfer of assets from the FIEF

Portfolio to the B/B Fund. The Bank represents that the transfer

transactions were in fact ministerial actions, performed in accordance

with prescribed, objective procedures. The Bank represents that the

pricing of the securities transferred was accomplished by reference to

independent sources, and the Client Plans, following the transfer

transactions, hold B/B Fund shares of value equal to that of their

former units in the FIEF Portfolio.

10. Paragraph (D) of Section I of the exemption describes certain

information which the Bank provided to the Second Fiduciary of each

Client Plan no later than 150 days after the completion of the transfer

transactions. The Bank represents, however, that prior to the Bank's

provision of these detailed disclosures, each Second Fiduciary was

notified shortly after the October 11, 1996 conversion that the

transfer transactions had occurred, with a statement indicating the

transaction, the account(s) affected, the date of the trade, the dollar

amount of the transaction, the B/B Fund share price, and the total

number of shares acquired. The Bank states that this confirmation

notice was sent to the Client Plans at various times, depending on the

particular plan's reporting cycle: Some of the Client Plans received

the confirmation as early as seven to ten days after the end of October

1996, some seven to ten days after the end of November 1996, and others

seven to ten days after the end of December 1996.

11. Fee arrangements: The Client Plans pay fees to the Bank in

accordance with fee schedules negotiated with the Bank. The Bank

represents that individual schedules vary depending on the particular

arrangements between the Bank and the Plan fiduciary, the competitive

forces in the market and the desires of the Plan sponsor. The Bank

states that the annual charge for accounts for which Plan assets are

invested in the CIF is based on a percentage of the aggregate market

value of the Plan's assets. All fees are charged at least annually, and

may be billed as frequently as monthly or quarterly.

BBOI charges an investment advisory fee to the B/B Portfolio in

accordance with an investment advisory agreement between the B/B

Portfolio and BBOI. This fee is borne indirectly by the B/B Fund as a

feeder fund in the master/feeder structure. BBOI in turn contracts with

BIAM for investment sub-advisory

[[Page 53714]]

services.10 BBOI has also entered into an administrative

services agreement with the B/B Fund under which it is responsible for

administering all aspects of the B/B Fund's day-to-day operations.

Accordingly, BBOI is responsible for furnishing all administrative

services reasonably necessary for the operation of the B/B Fund,

including recordkeeping and pricing services, custodian services,

transfer agency and dividend distribution services, tax and audit

services, legal services, insurance, communications, and other

administrative and recordkeeping services.

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\10\ The Bank represents that because BI, the parent corporation

of BBOI and BIAM, has only a 23.3% ownership interest in the Bank,

BBOI and BIAM do not appear to be ``affiliates'' of the Bank for

purposes of Prohibited Transaction Exemption 77-4 (PTE 77-4, 42 FR

18732, April 8, 1977) and, accordingly, the exemption provided by

PTE 77-4 does not appear to be available with respect to fees paid

by the B/B Fund to BBOI and BIAM. For this reason, the Bank has

requested that the exemption proposed herein include exemptive

relief for the payment of investment advisory fees, as well as fees

for any Secondary Service, to BBOI and BIAM for such services to the

B/B Fund, under conditions which are virtually identical to those

contained in PTE 77-4.

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The Bank has entered into an administrative services agreement with

the Berger/BIAM Worldwide Funds Trust and BBOI, as administrator of the

B/B Fund, under which the Bank will perform various administrative

services for the B/B Fund in return for a fee payable by BBOI. Those

services will include providing necessary personnel and facilities to

establish and maintain certain shareholder accounts and records;

assisting in processing purchase and redemption requests from Client

Plans or their participants; aggregating and processing purchase and

redemption requests from Client Plans or their participants and placing

net purchase and redemption orders with the B/B Fund's transfer agent;

transmitting and receiving funds in connection with Plan orders to

purchase or redeem shares; providing information periodically to Client

Plans or their participants indicating their balance in shares of the

B/B Fund, share prices, dividends paid, and/or dividend payment dates;

responding to inquiries from the Plans or their participants relating

to the B/B Fund, the services performed by the Bank, or the account

balances of the Client Plans or their participants; providing

subaccounting with respect to shares of the B/B Fund beneficially owned

by Client Plans or their participants; forwarding shareholder

communications from the B/B Fund (such as proxies, shareholder reports,

annual and semi-annual financial statements and dividend and

distributions notices) to Client Plans or their participants; and

providing such other similar services as BBOI or the Berger/BIAM

Worldwide Funds Trust may reasonably request, in accordance with

applicable statutes, rules and regulations.

The Bank states that it receives a bundled fee from the Plans for

its administrative and investment management services to the Plans. The

Bank represents that it has determined, and that the Second Fiduciary

of each Invested Plan has agreed, that one-third of this bundled fee is

attributable to the investment management services provided by the

Bank. The Bank has amended it bundled fee arrangement so that with

respect to the Plan assets invested in the B/B Fund shares, one-third

of the bundled fee will not be charged. Accordingly, the Bank

represents that pursuant to the requirements of PTE 77-4, the Bank will

not receive any investment management fee for the portion of a Plan's

assets that are invested in the B/B Fund.

12. In summary, the Bank represents that the in-kind transfer

transaction described herein satisfies the criteria of section 408(a)

of the Act for the following reasons:

(a) On behalf of each Client Plan a Second Fiduciary authorized in

writing such in-kind transfer prior to the transaction and only after

such Second Fiduciary received full written disclosure of information

concerning the B/B Fund.

(b) Each Client Plan received shares of the B/B Fund in connection

with the in-kind transfer of assets from the FIEF Portfolio to the B/B

Fund which were equal in value to the Plan's allocable share of assets

that had been invested in the FIEF Portfolio on the date of the

transfer as determined in a single valuation performed in the same

manner and at the close of the business day, using independent sources

in accordance with procedures established by the B/B Fund which

complied with Rule 17a-7(b) of the 1940 Act, as amended, and the

procedures established by the B/B Fund pursuant to Rule 17a-7 for the

valuation of such assets.

(c) Following the completion of the in-kind transfer transaction,

the Bank provided the Second Fiduciary of each Client Plan with written

confirmation containing (1) the identity of the security that was

valued for purposes of the transaction in accordance with Rule 17a-

7(b)(4) of the 1940 Act, (2) the price of the security involved in the

transaction; (3) the identity of the pricing service consulted in

determining the value of such securities; (4) the number of FIEF

Portfolio units held by the Plan immediately before the transfer, and

the related per unit value and total dollar amount of such FIEF

Portfolio units; and (5) the number of shares in the B/B Fund held by

the Plan following the purchase and the liquidation of the FIEF

Portfolio, and the related per share net asset value and total dollar

amount of such shares.

(d) As to each Invested Plan, no investment management fee is or

will be paid to the Bank with respect to Plan assets invested in shares

of the B/B Fund.

(e) No sales commissions were paid by an Invested Plan in

connection with the acquisition of shares in the B/B Fund.

(f) With respect to investments in the B/B Fund by the Client

Plans, each Second Fiduciary received full and detailed written

disclosure of information concerning the B/B Fund, including a current

prospectus and a statement describing the fee structure, and such

Second Fiduciary authorized, in writing, the investment of the Plan's

assets in the B/B Fund and the fees payable to the Bank; and

(g) The Bank will provide ongoing disclosures to Second Fiduciaries

of Client Plans to verify the fees charged to the Bank by the B/B Fund.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Barclays Bank PLC (Barclays) Located in London, England

[Application No. D-10486]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990).11

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\11\ For purposes of this proposed exemption, reference to

provisions of Title I of the Act, unless otherwise specified, refer

also to corresponding provisions of the Code.

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Section I. Covered Transactions

A. The restrictions of section 406(a)(1)) (A) through (D) 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, effective July 31, 1997, to any purchase or sale of a

security between Barclays or any affiliate of Barclays which is a bank

or a broker-dealer subject to British law (the Foreign Affiliate), and

employee

[[Page 53715]]

benefit plans (the Plans) with respect to which Barclays or the Foreign

Affiliate is a party in interest, including options on securities

written by the Plan, Barclays or the Foreign Affiliate, provided that

the following conditions and the General Conditions of Section II, are

satisfied:

(1) Barclays or the Foreign Affiliate customarily purchases and

sells securities for its own account in the ordinary course of its

business as a broker-dealer.

(2) The terms of any transaction are at least as favorable to the

Plan as those which the Plan could obtain in a comparable arm's length

transaction with an unrelated party.

(3) Neither Barclays, the Foreign Affiliate, nor any of their

affiliates thereof has discretionary authority or control with respect

to the investment of the Plan assets involved in the transaction, or

renders investment advice [within the meaning of 29 CFR 2510.3-21(c)]

with respect to those assets, and Barclays or the Foreign Affiliate is

a party in interest or disqualified person with respect to the Plan

assets involved in the transaction solely by reason of section 3(14)(B)

of the Act or section 4975(e)(2)(B) of the Code, or by reason of a

relationship to a person described in such sections. For purposes of

this paragraph, Barclays or the Foreign Affiliate shall not be deemed

to be a fiduciary with respect to Plan assets solely by reason of

providing securities custodial services for a Plan.

B. The restrictions of sections 406(a)(1) (A) through (D) 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 (D) of the Code, shall not apply, effective July 31, 1997, to

any extension of credit to a Plan by Barclays or the Foreign Affiliate

to permit the settlement of securities transactions or in connection

with the writing of options contracts or the purchase or sale of

securities, provided that the following conditions and the General

Conditions of Section II are satisfied:

(1) Barclays or the Foreign Affiliate is not a fiduciary with

respect to any Plan assets, unless no interest or other consideration

is received by Barclays, the Foreign Affiliate, or any of their

affiliates in connection with such extension of credit.

(2) Any extension of credit would be lawful under the Securities

Exchange Act of 1934 (the 1934 Act) and any rules or regulations

thereunder if such Act, rules or regulations were applicable and would

be lawful under applicable foreign law.

C. The restrictions of section 406(a)(1)(A) through (D) 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, effective July 31, 1997, to the lending of securities that

are assets of a Plan to Barclays or the Foreign Affiliate, provided

that the following conditions and the General Conditions of Section II

are satisfied:

(1) Neither Barclays, the Foreign Affiliate nor any of their

affiliates thereof has discretionary authority or control with respect

to the investment of Plan assets involved in the transaction, or

renders investment advice [within the meaning of 29 CFR 2510.3-21(c)]

with respect to those assets.

(2) The Plan receives from Barclays or the Foreign Affiliate,

either by physical delivery or by book entry in a securities depository

located in the United States, by the close of business on the day on

which the securities lent are delivered to Barclays or the Foreign

Affiliate, collateral consisting of U.S. currency, securities issued or

guaranteed by the United States Government or its agencies or

instrumentalities, or irrevocable United States bank letters of credit

issued by persons other than Barclays or the Foreign Affiliate (or any

of their affiliates), or any combination thereof, having, as of the

close of business on the preceding business day, a market value (or, in

the case of letters of credit, a stated amount) equal to not less than

100 percent of the then market value of the securities lent. (The

collateral referred to in this Section I(c)(2) must be in U.S. dollars

or dollar-denominated securities or United States bank letters of

credit and must be held in the United States.)

(3) The loan is made pursuant to a written loan agreement (the Loan

Agreement), which may be in the form of a master agreement covering a

series of securities lending transactions, and which contains terms at

least as favorable to the Plan as those the Plan could obtain in an

arm's length transaction with an unrelated party.

(4) In return for lending securities, the Plan either (i) receives

a reasonable fee which is related to the value of the borrowed

securities and the duration of the loan, or (ii) has the opportunity to

derive compensation through the investment of cash collateral. In the

latter case, the Plan may pay a loan rebate or similar fee to Barclays

or the Foreign Affiliate, if such fee is not greater than the Plan

would pay an unrelated party in a comparable arm's length transaction

with an unrelated party.

(5) The Plan receives at least the equivalent of all distributions

made to holders of the borrowed securities during the term of the loan,

including, but not limited to, cash dividends, interest payments,

shares of stock as a result of stock splits and rights to purchase

additional securities that the Plan would have received (net of tax

withholdings) 12 had it remained the record owner of such

securities.

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\12\ The Department notes the applicant's representation that

dividends and other distributions on foreign securities payable to a

lending Plan may be subject to foreign tax withholdings and that

Barclays or the Foreign Affiliate will always put the Plan back in

at least as good a position as it would have been in had it not lent

the securities.

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(6) If the market value of the collateral on the close of trading

on a business day falls below 100 percent of the market value of the

borrowed securities at the close of trading on that day, Barclays or

the Foreign Affiliate delivers additional collateral, by the close of

business on the following business day, to bring the level of the

collateral back to at least 100 percent of the market value of all the

borrowed securities as of such preceding day. Notwithstanding the

foregoing, part of the collateral may be returned to Barclays or the

Foreign Affiliate if the market value of the collateral exceeds 100

percent of the market value of the borrowed securities, as long as the

market value of the remaining collateral equals at least 100 percent of

the market value of the borrowed securities.

(7) Prior to the making of any securities loan, Barclays or the

Foreign Affiliate furnishes to the independent fiduciary for the Plan

who is making decisions on behalf of the Plan with respect to the

lending of securities: (i) the most recently available audited and

unaudited statements of its financial condition; and (ii) a

representation by Barclays or the Foreign Affiliate that, as of each

time it borrows securities, there has been no material adverse change

in its financial condition since the date of the most recently

furnished financial statement that has not been disclosed to the Plan

fiduciary.

(8) The Loan Agreement and/or any securities loan outstanding may

be terminated by the Plan at any time, whereupon Barclays or the

Foreign Affiliate delivers certificates for securities identical to the

borrowed securities (or the equivalent thereof in the event of

reorganization, recapitalization or merger of the issuer of the

borrowed securities) to the Plan within (i) the customary delivery

period for such securities; (ii) five business days; or (iii) the time

negotiated for such

[[Page 53716]]

delivery by the Plan and Barclays (or the Plan and the Foreign

Affiliate), whichever is lesser, or, alternatively such period as

permitted by Prohibited Transaction Exemption (PTE) 81-6 (43 FR 7527,

January 23, 1981) as it may be amended.

(9) In the event that the loan is terminated and Barclays or the

Foreign Affiliate fails to return the borrowed securities or the

equivalent thereof within the time described in paragraph (8) above,

then the Plan may purchase securities identical to the borrowed

securities (or their equivalent as described above) and may apply the

collateral to the payment of the purchase price, any other obligations

of Barclays or the Foreign Affiliate under the Loan Agreement, and any

expenses associated with the sale and/or purchase. Barclays or the

Foreign Affiliate shall indemnify the Plan with respect to the

difference, if any, between the replacement cost of the borrowed

securities and the market value of the collateral on the date the loan

is declared in default, together with expenses not covered by the

collateral plus applicable interest at a reasonable rate.

(10) The Plan maintains the situs of the Loan Agreement in

accordance with the indicia of ownership requirements under section

404(b) of the Act and the regulations promulgated under 29 CFR

2550.404(b)-1. However, Barclays or the Foreign Affiliate shall not be

subject to the civil penalty which may be assessed under section 502(i)

of the Act, or to the taxes imposed by section 4975(a) and (b) of the

Code, if the Plan fails to comply with the requirements of 29 CFR

2550.404(b)-1.

If Barclays or the Foreign Affiliate fails to comply with any

condition of this exemption in the course of engaging in a securities

lending transaction, the Plan fiduciary which caused the Plan to engage

in such transaction shall not be deemed to have caused the Plan to

engage in a transaction prohibited by section 406(a)(1)(A) through (D)

of the Act solely by reason of the failure on the part of Barclays or

the Foreign Affiliate to comply with the conditions of the exemption.

Section II. General Conditions

(a) Barclays is subject to regulation by the Bank of England.

(b) The Foreign Affiliate--

(1) Is subject to regulation by the Bank of England, or

(2) Is a registered broker-dealer subject to regulation by the

Securities and Futures Authority of the United Kingdom (the UK SFA) and

is in compliance with all applicable rules and regulations thereof.

(c) Barclays and the Foreign Affiliate are in compliance with all

requirements of Rule 15a-6 (17 CFR 240.15a-6), which provides foreign

broker-dealers a limited exemption from U.S. broker-dealer registration

requirements, and Securities and Exchange Commission (the SEC)

interpretations and amendments thereof to Rule 15a-6 under the 1934

Act, to the extent applicable.

(d) Prior to the transaction, Barclays or the Foreign Affiliate

enters into a written agreement with the Plan in which Barclays or the

Foreign Affiliate consents to the jurisdiction of the courts of the

United States for any civil action or proceeding brought in respect of

the subject transactions.

(e) Barclays or the Foreign Affiliate maintains, or causes to be

maintained, within the United States for a period of six years from the

date of such transaction such records as are necessary to enable the

persons described in paragraph (f) of this Section II to determine

whether the conditions of this exemption have been met except that--

(1) A party in interest with respect to a Plan, other than Barclays

or the Foreign Affiliate, shall not be subject to a civil penalty under

section 502(i) of the Act or the taxes imposed by section 4975(a) or

(b) of the Code, if such records are not maintained, or are not

available for examination as required by paragraph (e) of this Section

II; and

(2) A prohibited transaction will not be deemed to have occurred

if, due to circumstances beyond the control of Barclays or the Foreign

Affiliate, such records are lost or destroyed prior to the end of such

six year period.

(f) Notwithstanding the provisions of subsections (a)(2) and (b) of

section 504 of the Act, Barclays or the Foreign Affiliate makes the

records referred to above in paragraph (e) of this Section II,

unconditionally available for examination during normal business hours

at their customary location to the following persons or an authorized

representative thereof:

(1) The Department, the Internal Revenue Service or the SEC;

(2) Any fiduciary of a participating Plan;

(3) Any contributing employer to a Plan;

(4) Any employee organization any of whose members are covered by a

Plan; and

(5) Any participant or beneficiary of a Plan. However, none of the

persons described above in paragraphs (f)(2)-(f)(5) of this Section II

shall be authorized to examine trade secrets of Barclays or the Foreign

Affiliate, or any commercial or financial information which is

privileged or confidential.

(g) Prior to any Plan's approval of any transaction with Barclays

or the Foreign Affiliate, the Plan is provided copies of the proposed

and final exemptions covering the exemptive relief described herein.

Section III. Definitions

For purposes of this proposed exemption,

(a) The term ``Barclays,'' means ``Barclays Bank PLC'' which is

subject to regulation by the Bank of England.

(b) The term ``Foreign Affiliate'' means any affiliate of Barclays

which is subject to regulation by the Bank of England or the UK SFA.

(c) The term ``affiliate'' of another person shall include:

(1) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, or partner, employee or relative (as

defined in section 3(15) of the Act) of such other person; and

(3) Any corporation or partnership of which such other person is an

officer, director or partner. (For purposes of this definition, the

term ``control'' means the power to exercise a controlling influence

over the management or policies of a person other than an individual.)

(d) The term ``security'' includes equities, fixed income

securities, options on equity and on fixed income securities,

government obligations, and any other instrument that constitutes a

security under U.S. securities laws. The term ``security'' does not

include swap agreements or other notional principal contracts.

EFFECTIVE DATE: If granted, this proposed exemption will be effective

as of July 31, 1997.

Summary of Facts and Representations

1. Barclays, one of the largest full-line investment service firms

in the world, is an authorized institution under the Banking Act of

1987 of the United Kingdom and is regulated by the Bank of England. As

of June 30, 1998, Barclays had approximately 249 billion

($405.9 billion) in assets and 7.9 billion ($12.9 billion)

in stockholder's equity.13

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\13\ A conversion ratio of $1.63 per British Pound Sterling was

used to determine the applicable dollar amounts.

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2. Barclays Capital Securities Limited (BCSL) is a foreign broker-

dealer

[[Page 53717]]

affiliate of Barclays. Located in London, BCSL is subject to regulation

in the United Kingdom by the UK SFA. As of December 31, 1997, BCSL had

total assets of $36.5 billion.

3. Barclays requests exemptive relief from the Department to permit

it and any Foreign Affiliate that is subject to British law, to engage

in (a) purchases and sales of securities and (b) extensions of credit

in connection with such purchases and sales. Such transactions are

currently being executed between a Plan and Barclays or a Plan and the

Foreign Affiliate in transactions which generally meet the applicable

requirements of PTE 75-1, Part II (involving Principal Transactions)

and Part V (involving Extensions of Credit) (40 FR 50845, October 31,

1975). However, unlike PTE 75-1, the parties in interest involved in

the Principal Transactions that are described herein are not broker-

dealers registered under the 1934 Act, reporting dealers which make

primary markets in securities of the United States Government and

report daily to the Federal Reserve Bank its positions with respect to

Government securities and borrowings thereon, or banks supervised by

the United States or a State. Similarly, with respect to Extensions of

Credit Transactions that are described herein, the parties in interest

involved in this proposed exemption are not brokers or dealers

registered under the 1934 Act.

Further, Barclays requests exemptive relief with respect to the

lending of securities that are assets of a Plan to it or to the Foreign

Affiliate. While such transactions would generally meet the applicable

requirements of PTE 81-6, as amended, supplemented or superseded, in

the present case, again the parties in interest involved herein are not

broker-dealers registered under the 1934 Act or exempted from

registration under section 15(a)(1) of the 1934 Act as dealers in

exempted Government securities, as defined in section 3(a)(12) of the

1934 Act or U.S. banks.

Finally, Barclays requests that the exemptive relief described

above apply to its other Foreign Affiliates which, may in the future,

be subject to similar regulation by the Bank of England or the UK SFA.

If granted, the exemption will be effective as of July 31, 1997.

4. Barclays represents that it is regulated by the Bank of England

whose powers include licensing banks in the United Kingdom, issuing

directives to address violations by or irregularities involving such

banks, requiring information from a bank or its auditor regarding

supervisory matters and revoking bank licenses. Barclays also states

that the Bank of England ensures that it has procedures for monitoring

and controlling its worldwide activities through various statutory and

regulatory standards. Among these standards are requirements for

adequate internal controls, oversight, administration and financial

resources. Barclays further states that it is required to provide the

Bank of England on a recurring basis with information regarding capital

adequacy, country risk exposure and foreign exchange exposures as well

as periodic, consolidated financial reports on the financial condition

of Barclays and its affiliates.

5. Barclays represents that although the Foreign Affiliate will not

be registered with the SEC, its activities are governed by the rules,

regulations and membership requirements of the UK SFA. In this regard,

Barclays states that the Foreign Affiliate is subject to the UK SFA

rules relating to, among other things, minimum capitalization,

reporting requirements, periodic examinations, client money and safe

custody rules, and books and records requirements with respect to

client accounts. Barclays represents that the rules and regulations set

forth by the UK SFA and the SEC share a common objective: the

protection of the investor by the regulation of the securities

industry. Barclays notes that the UK SFA rules require each firm which

employs registered representatives or registered traders to have

positive tangible net worth and to be able to meet its obligations as

they may fall due, and that the UK SFA rules set forth comprehensive

financial resource and reporting/disclosure rules regarding capital

adequacy. In addition, to demonstrate capital adequacy, Barclays states

that the UK SFA rules impose reporting/disclosure requirements on

broker-dealers with respect to risk management, internal controls, and

transaction reporting and recordkeeping requirements. In this regard,

required records must be produced at the request of the UK SFA at any

time. Barclays further states that the rules and regulations of the UK

SFA for broker-dealers are backed up by potential fines and penalties

as well as rules which establish a comprehensive disciplinary system.

6. Barclays represents that in addition to the protections afforded

by the Bank of England and the UK SFA, compliance by it and the Foreign

Affiliate with the requirements of Rule 15a-6 (and the amendments and

interpretations thereof) will offer further protections to

Plans.14 Rule 15a-6 provides an exemption from U.S.

registration requirements for a foreign broker-dealer that induces or

attempts to induce the purchase or sale of any security (including

over-the-counter equity and debt options) by a ``U.S. institutional

investor'' or a ``U.S. major institutional investor,'' provided that

the foreign broker dealer, among other things, enters into these

transactions through a U.S. registered broker-dealer intermediary. The

term ``U.S. institutional investor,'' as defined in Rule 15a-6(b)(7),

includes an employee benefit plan within the meaning of the Act if (a)

the investment decision is made by a plan fiduciary, as defined in

section 3(21) of the Act, which is either a bank, savings and loan

association, insurance company or registered investment advisor, or (b)

the employee benefit plan has total assets in excess of $5 million, or

(c) the employee benefit plan is a self-directed plan with investment

decisions made solely by persons that are ``accredited investors'' as

defined in Rule 501(a)(1) of Regulation D of the Securities Exchange

Act of 1933, as amended. The term ``U.S. major institutional investor''

is defined as a person that is a U.S. institutional investor that has

total assets in excess of $100 million or accounts managed by an

investment adviser registered under section 203 of the Investment

Advisers Act of 1940 that has total assets under management in excess

of $100 million.15 Barclays represents that the

intermediation of the U.S. registered broker-dealer imposes upon the

foreign broker-dealer the requirement that the securities

[[Page 53718]]

transaction be effected in accordance with a number of U.S. securities

laws and regulations applicable to U.S. registered broker-dealers.

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\14\ According to Barclays, section 3(a)(4) of the 1934 Act

defines ``broker'' to mean ``any person engaged in the business of

effecting transactions in securities for the account of others, but

it does not include a bank.'' Section 3(a)(5) of the 1934 Act

provides a similar exclusion for ``banks'' in the definition of the

term ``dealer.'' However, section 3(a)(6) of the 1934 Act defines

``bank'' to mean a banking institution organized under the laws of

the United States or a State of the United States. Further, Rule

15(a)(6)(b)(2) provides that the term ``foreign broker or dealer''

means ``any non-U.S. resident person * * * whose securities

activities, if conducted in the United States, would be described by

the definition of ``broker'' or ``dealer'' in sections 3(a)(4) or

3(a)(5) of the [1934] Act.'' Therefore, the test of whether an

entity is a ``foreign broker'' or ``dealer'' is based on the nature

of such foreign entity's activities and, with certain exceptions,

only banks that are regulated by either the United States or a State

of the United States are excluded from the definition of the term

``broker'' or ``dealer.'' Thus, for purposes of this exemption

request, Barclays is willing to represent that it will comply with

the applicable provisions and relevant SEC interpretations and

amendments of Rule 15a-6.

\15\ See SEC No-Action Letter issued to Cleary, Gottlieb, Steen

& Hamilton on April 9, 1997, expanding the definition of ``Major

U.S. Institutional Investor'' (the April 9, 1997 No-Action Letter).

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Barclays represents that under Rule 15a-6, a foreign broker-dealer

that induces or attempts to induce the purchase or sale of any security

by a U.S. institutional or major institutional investor in accordance

with Rule 15a-6 16 must, among other things:

\16\ If it is determined that applicable regulation under the

1934 Act does not require Barclays or the Foreign Affiliate to

comply with Rule 15a-6, both entities will, nevertheless, comply

with paragraphs (a) and (b) above.

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(a) Consent to service of process for any civil action brought

by, or proceeding before, the SEC or any self-regulatory

organization;

(b) Provide the SEC with any information or documents within its

possession, custody or control, any testimony of any such foreign

associated persons, and any assistance in taking the evidence of

other persons, wherever located, that the SEC requests and that

relates to transactions effected pursuant to the Rule;

(c) Rely on the U.S. registered broker-dealer through which the

transactions with the U.S. institutional and major institutional

investors are effected to (among other things):

(1) Effect the transactions, other than negotiating their terms;

(2) Issue all required confirmations and statements;

(3) As between the foreign broker-dealer and the U.S. registered

broker-dealer, extend or arrange for the extension of credit in

connection with the transactions;

(4) Maintain required books and records relating to the

transactions, including those required by Rules 17a-3 (Records to be

Made by Certain Exchange Members) and 17a-4 (Records to be Preserved

by Certain Exchange Members, Brokers and Dealers) of the 1934 Act;

(5) Receive, deliver, and safeguard funds and securities in

connection with the transactions on behalf of the U.S. institutional

investor or U.S. major institutional investor in compliance with

Rule 15c3-3 of the 1934 Act (Customer Protection--Reserves and

Custody of Securities); 17 and

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\17\ Under certain circumstances described in the April 9, 1997

No-Action Letter (e.g., clearance and settlement transactions),

there may be direct transfers of funds and securities between a Plan

and Barclays or between a Plan and the Foreign Affiliate. Barclays

notes that in such situations, the U.S. registered broker-dealer

will not be acting as a principal with respect to any duties it is

required to undertake pursuant to Rule 15a-6.

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(6) Participate in certain oral communications (e.g., telephone

calls) between the foreign associated person and the U.S.

institutional investor (not the U.S. major institutional investor),

and accompany the foreign associated person on certain visits with

both U.S. institutional and major institutional investors. Under

certain circumstances, the foreign associated person may have direct

communications and contact with the U.S. Institutional Investor.

(See April 9, 1997 SEC No-Action Letter.)

7. In addition to the protections cited above, Barclays represents

that prior to a transaction described herein, it or the Foreign

Affiliate will enter into a written agreement with the Plan whereby it

or the Foreign Affiliate will consent to the jurisdiction of the courts

of the United States for any civil action or proceeding brought in

respect of such transaction. Further, Barclays or the Foreign Affiliate

will maintain, or cause to be maintained, within the United States for

a period of six years, from the date of a transaction such records as

are necessary to enable the Department and others to determine whether

the conditions of the exemption have been met.

Principal Transactions

8. Barclays represents that both it and the Foreign Affiliate

operate as traders in dealers' markets wherein they customarily

purchase and sell securities for their own account in the ordinary

course of their business and engage in purchases and sales of

securities, including options on securities written by the Plan,

Barclays or the Foreign Affiliate with their clients. Such trades are

referred to as principal transactions. Barclays states that the role of

a bank or a broker-dealer engaged in a principal transaction in the

subject foreign countries is virtually identical to that of a bank or a

broker-dealer engaged in a principal transaction in the United States.

Therefore as noted above, Barclays requests an individual exemption,

effective July 31, 1997, to permit it and Foreign Affiliate to engage

in principal transactions with the Plans under the terms and conditions

equivalent to those of Part II of PTE 75-1. As previously stated,

because PTE 75-1 provides an exemption for U.S. registered broker-

dealers and U.S. banks, the principal transactions may fall outside the

scope of relief provided therein.

9. Barclays represents that like the U.S. dealer markets,

international equity and debt markets, including the options markets,

are no less dependent on a willingness of dealers to trade as

principals. Over the past decade, Plans have increasingly invested in

foreign equity and debt securities, including foreign government

securities. Thus, Barclays notes that Plans seeking to enter into such

investments may wish to increase the number of trading partners

available to them by trading with it or the Foreign Affiliate.

10. Barclays represents that the terms of any principal transaction

will be at least as favorable to the Plan as those the Plan could

obtain in a comparable arm' length transaction with an unrelated party.

In addition, Barclays states that neither it, the Foreign Affiliate nor

any of their affiliates thereof will have discretionary authority or

control with respect to the investment of the Plan assets involved in

the principal transaction or render investment advice [within the

meaning of 29 CFR 2510.3-21(c)] with respect to those assets. Further,

Barclays represents that it or the Foreign Affiliate will be a party in

interest with respect to those Plan involved in a principal transaction

by reason of providing services to a Plan under section 3(14) of the

Act or by reason of a relationship to such service provider. However,

Barclays maintains that it or the Foreign Affiliate will not be deemed

to be a fiduciary with respect to Plan assets solely by reason of

providing securities custodial services for a Plan.

Extensions of Credit

11. Barclays represents that a normal part of the execution of

securities transactions by broker-dealers on behalf of customers,

including Plans, is the extension of credit to customers so as to

permit the settlement of transactions in the customary settlement

period. Such extensions of credit are customary in connection with the

buying and writing of option contracts. Therefore, Barclays requests,

effective July 31, 1997, exemptive relief for extensions of credit

between it and a Plan or between the Foreign Affiliate and a Plan in

the ordinary course of their purchases or sales of securities,

regardless of whether they are effected on an agency or a principal

basis. Although an exemption for such extensions of credit is provided

under Part V of PTE 75-1 for U.S. registered broker-dealers, it is not

available for Barclays or for the Foreign Affiliate which are or will

be domiciled in the United Kingdom.

12. As in PTE 75-1, Barclays or the Foreign Affiliate may not be a

fiduciary with respect to Plan assets involved in the transaction

unless no interest or other consideration is received by Barclays, the

Foreign Affiliate or any of their affiliates thereof, in connection

with any extension of credit. The extension of credit also must be

lawful under applicable foreign law.

Securities Lending

13. In addition to exemptive relief for principal transactions and

extensions of credit in connection with the purchase or sale of

securities, Barclays requests exemptive relief, effective July 31,

1997, for the lending of securities, equivalent to that provided under

the terms and conditions of PTE 81-6, a class exemption to permit

certain loans of

[[Page 53719]]

securities by employee benefit plans. Under such circumstances,

Barclays or the Foreign Affiliate, acting as principals, actively

engage in the borrowing and lending of securities, typically foreign

securities from institutions, including employee benefit plans. Because

PTE 81-6 provides an exemption for U.S. registered broker-dealers and

U.S. banks, the securities lending transactions at issue herein may, as

briefly noted above, fall outside the scope of relief provided by PTE

81-6.

14. It is represented that Barclays and the Foreign Affiliate

utilize borrowed securities to satisfy their own trading requirements

or to re-lend to other affiliates and entities which need a particular

security for a certain period of time. As described in the Federal

Reserve Board's Regulation T, borrowed securities are often used to

meet delivery obligations in the case of short sales or the failure to

receive securities that Barclays or the Foreign Affiliate is required

to deliver. Barclays also represents that foreign broker-dealers are

the most likely entities that seek to borrow foreign securities. Thus,

the exemption will increase the lending demand for such securities and

provide the Plans with increased securities lending opportunities.

15. It is represented that an institutional investor, such as a

pension plan, lends securities in its portfolio to Barclays or the

Foreign Affiliate in order to earn a fee while continuing to enjoy the

benefits of owning securities (e.g., from the receipt of any interest,

dividends or other distributions due on those securities and from any

appreciation in the value of the securities). The lender generally

requires that the securities loan be fully collateralized and the

collateral usually is in the form of U.S. currency, irrevocable U.S.

bank letters of credit issued by a bank other than Barclays, or high-

quality liquid securities such as U.S. Government or Federal Agency

obligations. When cash is the collateral, the lender invests the cash

and rebates a previously-agreed upon amount to Barclays or the Foreign

Affiliate. The ``fee'' received by the lender as compensation for the

loan of its securities then consists of the excess, if any, of the

earnings on the collateral over the amount of the rebate. When the

collateral consists of obligations other than cash, Barclays or the

Foreign Affiliate pays a fee directly to the lender.

16. Neither Barclays, the Foreign Affiliate nor any of their

affiliates thereof will have discretionary authority or control with

respect to the investment of Plan assets involved in the transaction or

render investment advice, within the meaning of 29 CFR 2510.3-21(c)

with respect to those assets.

17. By the close of business on the day the loaned securities are

delivered to Barclays or the Foreign Affiliate, the Plan will receive,

from Barclays or the Foreign Affiliate, (by physical delivery, book

entry in a U.S. securities depository, wire transfer or similar means)

collateral consisting of U.S. currency, securities issued or guaranteed

by the U.S. Government or its agencies, irrevocable U.S. bank letters

of credit issued by persons other than Barclays, the Foreign Affiliate,

or any of their affiliates, or any combination thereof, having, as of

the close of trading on the preceding business day, a market value

equal to at least 100 percent of the then market value of the loaned

securities (or, in the case of letters of credit, a stated amount equal

to same). All collateral posted by Barclays or the Foreign Affiliate

will be in U.S. dollars or dollar-denominated securities or U.S. bank

irrevocable letters of credit and will be held in the United States.

18. The loan will be made pursuant to a written Loan Agreement

which may be in the form of a master agreement covering a series of

securities lending transactions. The terms of the Loan Agreement will

be at least as favorable to the Plan as those the Plan could obtain in

a comparable arm's length transaction with an unrelated party. The Loan

Agreement will also contain a requirement that the Barclays or the

Foreign Affiliate pay all transfer fees and transfer taxes relating to

the securities loans.

19. In return for lending securities, the Plan will either (a)

receive a reasonable fee which is related to the value of the borrowed

securities and the duration of the loan or (b) have the opportunity to

derive compensation through the investment of cash collateral. In the

latter case, the Plan may pay a loan rebate or similar fee to Barclays

or the Foreign Affiliate if such fee is not greater than what the Plan

would pay in a comparable arm's length transaction with an unrelated

party.

Under this fee arrangement, earnings generated by non-cash

collateral will be returned to Barclays or the Foreign Affiliate. The

Plan will be entitled to at least the equivalent of all distributions

on the borrowed securities made during the term of the loan, including,

but not limited to, cash dividends, interest payments, shares of stock

as a result of stock splits and rights to purchase additional

securities that the Plan would have received (net of tax withholdings)

had it remained the record owner of such securities.

20. If the market value of the collateral as of the close of

trading on a business day falls below 100 percent of the market value

of the borrowed securities as of the close of trading on that day,

Barclays or the Foreign Affiliate will deliver additional collateral,

by the close of business on the following business day, to bring the

level of the collateral back to at least 100 percent. Notwithstanding

the foregoing, part of the collateral may be returned to Barclays or

the Foreign Affiliate if the market value of the collateral exceeds 100

percent of the market value of the borrowed securities, as long as the

market value of the remaining collateral equals at least 100 percent of

the market value of the borrowed securities. Matters relating to the

return of the collateral, the substitution of collateral or the

termination of loans, will be determined by applicable provisions of

the Loan Agreement.

21. Before entering a Loan Agreement, Barclays or the Foreign

Affiliate will furnish to the Plan the most recently available audited

and unaudited statements of such entity's financial condition. In

addition, Barclays or the Foreign Affiliate will represent that as of

each time such entity borrows securities there has been no material

change in the financial condition of such entity since the date of the

most recently-furnished financial statement that has not been disclosed

to the Plan.

22. The Loan Agreement and/or any securities loan outstanding may

be terminated by the Plan at any time, whereupon Barclays or the

Foreign Affiliate will deliver certificates for securities identical to

the borrowed securities (or the equivalent thereof in the event of a

reorganization, recapitalization or merger of the issuer of the

borrowed securities) to the Plan within the time period specified by

PTE 81-6 as it may be amended. In the event that Barclays or the

Foreign Affiliate fails to return the borrowed securities, or the

equivalent thereof, within the designated time, the Plan will have

certain rights under the Loan Agreement to realize upon the collateral.

The Plan may purchase securities identical to the borrowed securities,

or the equivalent thereof, and may apply the collateral to the payment

of the purchase price, any other obligations of Barclays or the Foreign

Affiliate under the Loan Agreement and any expenses associated with

replacing the borrowed securities. Barclays or the Foreign Affiliate

will indemnify the Plan with respect to the difference, if any, between

the

[[Page 53720]]

replacement cost of the borrowed securities and the market value of the

collateral on the date the loan is declared in default, together with

expenses not covered by the collateral plus applicable interest at a

reasonable rate. If replacement securities are not available, Barclays

or the Foreign Affiliate will pay the Plan an amount equal to (a) the

value of the securities as of the date such securities should have been

returned to the Plan plus (b) all the accrued financial benefits

derived from the beneficial ownership of such loan securities as of

such date, plus (c) interest from such date through the date of

payment.

23. The Plan will maintain the situs of the Loan Agreement in

accordance with the indicia of ownership requirements of section 404(b)

of the Act and the regulations promulgated under 29 CFR 2550.404(b)-1.

However, Barclays or the Foreign Affiliate will not be subject to the

civil penalty which may be assessed under section 502(i) of the Act or

to the taxes imposed by section 4975(a) and (b) of the Code, if the

Plan fails to comply with the requirements of 29 CFR 2550.404(b)-1.

24. In summary, it is represented that the proposed transactions

have satisfied and will satisfy the statutory criteria for an exemption

under section 408(a) of the Act for the following reasons:

(a) With respect to principal transactions effected by Barclays or

the Foreign Affiliate, the exemption has enabled and will enable Plans

to realize the same benefits of efficiency and convenience which derive

from principal transactions executed pursuant to Part II of PTE 75-1 by

U.S. registered broker-dealers and U.S. banks.

(b) With respect to extensions of credit by Barclays and the

Foreign Affiliate in connection with purchases or sales of securities,

the exemption has enabled and will enable the Plans and Barclays or the

Plans and the Foreign Affiliate to extend credit in the ordinary course

of Barclays's or the Foreign Affiliate's business so as to effect the

transactions within the customary settlement period or in connection

with the buying and writing of options contracts or in connection with

short sales, as permitted by Part V of PTE 75-1, for U.S. registered

broker-dealers.

(c) With respect to securities lending transactions effected by

Barclays or the Foreign Affiliate, the exemption has enabled and will

enable Plans to realize a low-risk return on securities that otherwise

would remain idle, as in securities lending transactions executed

pursuant to PTE 81-6 by U.S. registered broker-dealers and U.S. banks.

(d) The proposed exemption will provide Plans with virtually the

same protections and benefits as those provided by PTE 75-1 and PTE 81-

6.

Notice to Interested Persons

The applicant represents that because those Plans that will be

potentially interested in the transactions cannot be identified at this

time, the only practical means of notifying Plan fiduciaries is by the

publication of the notice of proposed exemption in the Federal

Register. Therefore, comments and requests for a hearing must be

received by the Department not later than 30 days from the date of the

publication of this proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

The Millcraft Industries Salaried Employees Pension Plan (the

Salaried Plan) and The Millcraft Products, Inc. Hourly Employees

Pension Plan and Trust Agreement (the Hourly Plan) (collectively,

the Plans) Located in Canonsburg, PA

[Exemption Application Numbers D-10608 and D-10609]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and 4975(c)(2) of the Code and

in accordance with the procedures set forth in 29 CFR Part 2570,

Subpart B (55 FR 32836, August 10, 1990). If the exemption is granted,

the restrictions of sections 406(a), 406(b)(1) and (b)(2) of the Act

and the sanctions resulting from the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall

not apply to three cash sales (the Sales) of certain shares of stock

(the Stock) by the Plans to Millcraft Industries, Inc. (Millcraft

Industries), a party in interest and disqualified person with respect

to the Plans, provided the following conditions were met:

(a) The terms of the Sales were at least as favorable to the Plans

as those obtainable in an arm's length transaction with an unrelated

party;

(b) The Sales were one-time transactions for cash;

(c) The Plans paid no commissions or expenses relating to the

Sales; and

(d) The Sales were for no less than the fair market value of the

Stock as determined by a qualified, independent appraiser.

Effective Date: If granted, the proposed exemption will be

effective as of November 15, 1996.

Summary of Facts and Representations

1. The applicant describes the Plans as follows:

a. The Salaried Plan was originally established by Millcraft

Industries on August 28, 1972 and has since been amended and restated

effective November 1, 1989. At the time of the transactions, the

Salaried Plan had 86 participants and held assets valued at

approximately $1.8 million.

b. The Hourly Plan was originally established by Millcraft

Products, Inc. (Millcraft Products) on November 1, 1963 and has since

been amended and restated effective November 1, 1989. At the time of

the transactions, the Hourly Plan had 216 participants and held assets

valued at approximately $1.95 million.

At all times relevant to the transactions in question, Jack B.

Piatt, Jack B. Piatt, II, Rodney L. Piatt, and Charles D. Boehm served

as trustees (the Trustees) for the Plans, and Merrill Lynch, Pierce,

Fenner & Smith, Incorporated (Merrill Lynch) served as broker for both

Plans.

2. Millcraft Industries, the sponsor and administrator of the

Salaried Plan, is a Pennsylvania corporation located at 400 Southpointe

Boulevard, Suite 400, Canonsburg, Pennsylvania. Millcraft Industries is

a holding and management corporation engaged, through subsidiaries, in

the manufacturing and marketing of specialized equipment for the steel-

making industry and the development of real estate.

Millcraft Products, sponsor and administrator of the Hourly Plan,

is a wholly-owned subsidiary of Millcraft Industries that is also

located in Pennsylvania. Millcraft Products is a manufacturing,

continuous caster repair, machinery, and fabricating company that

provides parts, services, and equipment for the steel-making industry.

3. Among the assets of the Plans are certain shares of Stock in the

Community Bank, NA, (the Bank) a publicly traded corporation located in

Pennsylvania. Except for approximately 3.3% of the outstanding Stock of

the Bank held by the Plans and approximately 4.4% of the outstanding

Stock of the Bank held by Millcraft Industries at the time of the

transaction, the Bank was otherwise unrelated to Millcraft Industries,

Millcraft Products and the Plans.

The Stock is a thinly-traded security with quotes available only

via the National Quotation Bureau's ``pink

[[Page 53721]]

sheets.'' From 1985 through 1989, the Hourly Plan purchased 2,926

shares of the Stock from the Bank. The purchase price of these shares

varied between $53 and $65 per share. As the result of a two-for-one

stock split on April 10, 1986, and a four-for-one stock split on May 1,

1994, the Hourly Plan obtained an additional 12,778 shares of the

Stock.

From 1988 through 1993, the Salaried Plan purchased 2,300 shares of

the Stock from the Bank. The purchase price of these shares varied

between $47 and $53 per share. The Salaried Plan obtained an additional

6,900 shares of Stock as a result of the May 1, 1994 stock split.

4. According to the applicant, the Trustees originally purchased

the Stock on behalf of the Plans in the mid-1980's in response to the

increasing number of bank mergers in western Pennsylvania and in

anticipation that this trend would continue.

However, in the months preceding the consummation of the

transactions, the Trustees concluded that the period of speculation on

local bank mergers had ended. The Trustees decided that the assets of

the Plans would have greater long-term profit potential if they were

placed with a professional asset management company.

When Millcraft Industries expressed interest in purchasing the

Stock, the Trustees decided to sell the shares at the prevailing market

value. Accordingly, on November 15, 1996, the Trustees authorized

Merrill Lynch to sell 1,200 shares of the Stock from the Salaried Plan

to Millcraft Industries for $30,900, or $25.75 per share. Then, on

November 20, 1996, the Trustees authorized Merrill Lynch to sell an

additional 8,000 shares of the Stock to Millcraft Industries from the

Salaried Plan for $206,000, or $25.75 per share. Finally, also on

November 20, 1996 the Trustees authorized Merrill Lynch to sell 15,704

shares of the Stock to Millcraft Industries from the Hourly Plan for

$404,378, or $25.75 per share.

As of November 20, 1996, the Plans had sold a total of 24,904

shares of the Stock to Millcraft Industries at $25.75 per share.

According to the applicant, the Salaried Plan earned a profit of

$116,800, or an average of $12.70 per share, and the Hourly Plan earned

a profit of $237,300, or an average of $15.11 per share. In addition,

the applicant represents that the Plans incurred no brokerage

commissions or other charges as a result of the above transactions.

5. The applicant requests retroactive relief for the aforementioned

transactions involving the Sales of stock from the Plans. The applicant

represents that at the time of the transactions, the Trustees and

Millcraft Industries were not aware that the transactions were

prohibited under ERISA and the Code and that they would not have

engaged in these transactions had they been aware of this fact.

6. Prior to executing these transactions, Millcraft Industries

employed Parker/Hunter, Inc. (Parker/Hunter), a market maker in the

Stock, to ascertain the fair market value of the shares. Parker/Hunter,

a member of the New York Stock Exchange and the Securities Investors

Protection Corporation, is a full service brokerage and investment

banking firm headquartered in Pittsburgh, Pennsylvania with 300

employees in 21 offices throughout Pennsylvania, Ohio and West

Virginia. The firm is independent of the Plans, Millcraft Industries

and Millcraft Products. In providing the pricing information to

Millcraft Industries, Parker/Hunter used data from the most recent

sales of the Stock to determine that the fair market value of the Stock

on November 15, 1996 and November 20, 1996 was $25.75 per share.

7. Upon discovering in August 1997 that its purchases of the Stock

from the Plans were prohibited, Millcraft Industries promptly sought

legal advice as to the steps needed to correct these violations. On

October 31, 1997, Millcraft Industries represents that it reversed the

transactions in accordance with 26 CFR 53.4941(e)-1(c) of the Treasury

Department Regulations by instructing Merrill Lynch to transfer 9,200

shares of the Stock to the Salaried Plan and transfer 15,704 shares of

Stock to the Hourly Plan.18 At the same time, the Trustees

instructed the Plans' broker to transfer $236,900, or $25.75 per share,

from the Salaried Plan to Millcraft Industries and $404,378, or $25.75

per share, from the Hourly Plan to Millcraft Industries.19

The applicant represents that no commissions were charged with respect

to the correction.20

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\18\ The Department expresses no opinion regarding whether the

corrective actions taken by the applicant were done in accordance

with 26 CFR 53.4941(e)-1(c) of the Treasury Regulations.

\19\ Prior to reversing the transactions, Millcraft consulted

Parker/Hunter to determine the fair market value of the Stock.

Parker/Hunter determined that the fair market value of the Stock as

of October 31, 1997 would be in excess of $25.75 per share. Merrill

Lynch account statements for October 1997 confirm that the estimated

market price of the Stock was $31.50 per share at the time of the

reversal transaction.

\20\ The applicant also wishes to note that while holding the

Stock, Millcraft Industries received $12,950.08 in dividends.

Pursuant to 26 CFR 53.4941(e)-1(c)(2) of the Treasury Regulations, a

disqualified person must pay to the plan any income derived by him

from the property he received from the original prohibited sale to

the extent such income exceeds the income derived by the plan from

the cash which the disqualified person originally paid to the plan.

The applicant represents that the Plans invested the $641,278

received from Millcraft Industries in the transactions, and on these

various investments earned an estimated $125,000. Because this

amount substantially exceeds the $12.950.08 in dividends received by

Millcraft Industries while in possession of the Stock, Millcraft

Industries determined that it was not required to remit an amount

equal to the dividends to the Plans.

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8. The applicant represents that the Sales were administratively

feasible in that each involved a one-time transaction for cash.

Furthermore, the applicant states that the transactions were in the

interests of the Plans and their participants and beneficiaries because

the Stock was sold in an attempt to facilitate investment in assets

achieving a higher a rate of return, and were conducted in such a

manner as to ensure that the Plans received a return on the Stock in

excess of their original investment. Finally, the applicant represents

that the transactions were protective of the rights of the participants

and beneficiaries because the Plans received the fair market value of

the Stock as determined by a qualified, independent appraiser.

9. In summary, the applicant represents that the subject

transaction satisfied the statutory criteria for an exemption under

section 408(a) of the Act and section 4975(c)(2) of the Code for the

following reasons: (a) The terms of the Sales were at least as

favorable to the Plans as those obtainable in an arm's length

transaction with an unrelated party; (b) The Sales were one-time

transactions for cash; (c) The Plans paid no commissions or expenses

relating to the Sales; and (d) The Sales were for no less than the fair

market value of the Stock as determined by a qualified, independent

appraiser.

Notice to Interested persons

Notice of the proposed exemption shall be given to all interested

persons in the manner agreed upon by the applicant and the Department

within 15 days of publication in the Federal Register. Such notice

shall include a copy of the notice of pendency of the exemption as

published in the Federal Register and shall inform interested persons

of their right to comment and request a hearing with respect to the

proposed exemption. Comments and requests for a hearing are due on or

before November 20, 1998.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier of the

Department, telephone (202) 219-8881 (this is not a toll-free number).

[[Page 53722]]

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 30th day of September, 1998.

Ivan Strasfeld,

Director of Exemption Determinations Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-26621 Filed 10-5-98; 8:45 am]

BILLING CODE 4510-29-P