Grant of Individual Exemptions; Citizens Bank New Hampshire

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 98-60; Exemption Application No. D-

10352, et al.]

Grant of Individual Exemptions; Citizens Bank New Hampshire

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) 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).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, 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 proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

Citizens Bank New Hampshire, Located in Manchester, New Hampshire

[Prohibited Transaction Exemption 98-60; Exemption Application No. D-

10352]

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

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 were 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),1 the

investment adviser and investment sub-adviser of which were 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:

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\1\ In this regard, the Bank represents that any further in-kind

transfers of CIF assets to the B/B Fund will comply with the

conditions of Prohibited Transaction Exemption (PTE) 97-41 (62 FR

42830, August 8, 1997). PTE 97-41 permits the purchase by employee

benefit plans (i.e. the Client Plans) of shares of one or more open-

ended management investment companies (i.e. mutual funds) registered

under the 1940 Act in exchange for assets of the Client Plans

transferred in-kind to the mutual fund from a collective investment

fund (i.e. the CIF) maintained by a bank or a plan adviser, where

the bank or plan adviser is the investment adviser to the mutual

fund and also a fiduciary to the Client Plans, if the conditions of

the exemption are met. However, as noted further below, the Bank

distributed written confirmation to the Client Plans regarding the

in-kind transfer of CIF assets made to the Funds within 150 days,

rather than within the 105-day period required by Section I(g) of

PTE 97-41. Thus, an individual exemption to cover these specific CIF

conversions is necessary to provide the appropriate retroactive

relief.

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(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) The transferred assets constituted the Client Plans' pro rata

portion of all assets that were held by the CIF immediately prior to

the transfer;

(C) 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);

(D) 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 (D) 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

[[Page 71302]]

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;

(E) On the basis of the information described in paragraph (D) 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 BBOI, BIAM or the Bank 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;

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

than 150 days 2 after the completion of the transfer a

written confirmation that contained the following information:

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\2\ See Footnote 1 Above.

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(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;

(G) 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;

(H) 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;

(I) Neither the Bank, BBOI, BIAM 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; and

(J) 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) and 406(b) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(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, as

well as for acting as a 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

[[Page 71303]]

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 B/B 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

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; and

(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 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

[[Page 71304]]

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 is effective as of October 11, 1996.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption (the Notice) published on October 6,

1998, at 63 FR 53709.

Modifications: The Department, with the consent of the applicant's

representative, has made certain modifications to the conditions

contained in Section I of the Notice.

First, a new condition (B) has been added to Section I of this

exemption which requires that the transferred assets must have

constituted the Client Plan's pro rata portion of all assets that were

held by the CIF immediately prior to the transfer.

Second, a footnote has been added to the operative language in

Section I to clarify that any future in-kind transfers of CIF assets to

the Funds will comply with the conditions of PTE 97-41 (62 FR 42830,

August 8, 1997), a class exemption granted by the Department which

covers such transactions if the conditions of the exemption are met.

No other written comments, and no requests for a hearing, were

received by the Department.

Accordingly, the Department has determined to grant the proposed

exemption, as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. Christopher J. Motta of the

Department, telephone (202) 219-8883 (This is not a toll-free number).

John Hancock Mutual Life Insurance Company (JHMLIC), Located in

Boston, Massachusetts

[Prohibited Transaction Exemption 98-61; Application No. D-10484]

Exemption

The restrictions of section 406(b)(2) of the Act shall not apply to

the proposed purchases and sales of Timber Assets between various

Accounts that are managed by Hancock Natural Resource Group, Inc.

(HNRG), John Hancock Timber Resource Corporation (JHTRC), or another

Affiliate of JHMLIC.

Conditions and Definitions

This exemption is subject to the following conditions:

1. ERISA-Covered Plans may participate in the proposed transactions

only if they have total assets in excess of $100 million.

2. At least 30 days prior to the proposed transaction, each

affected Customer invested in the Accounts participating in the

transaction will be provided with information regarding the Timber

Assets involved and the terms of the transaction, including the

purchase price and how the transaction would meet the goals and

investment policies of the Customer. Notice of any change in the

purchase price will be provided to the Customer at least 30 days prior

to the consummation of the transaction.

3. An Independent Fiduciary will be appointed by JHMLIC or an

Affiliate as follows:

(a) Where the proposed transaction involves an ERISA-Covered Plan

(including a Pooled Separate Account or other Account holding ``plan

assets'' subject to the Act)3 and a Non-ERISA Plan or other

Non-ERISA Customer, an Independent Fiduciary will be appointed to

represent the Account in which the ERISA-Covered Plan is invested,

whether that Account is the buyer or the seller of the Timber Assets in

the proposed transaction;

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\3\ See 29 CFR 2510.3-101 for the Department's definition of

``plan assets'' relating to plan investments.

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(b) Where the proposed transaction involves two ERISA-Covered Plans

(or Pooled Separate Accounts or other Accounts holding ``plan assets''

subject to the Act) and the decision to liquidate the Timber Asset is

the result of one or more ``triggering events'' described below, an

Independent Fiduciary will be appointed by JHMLIC or an Affiliate to

represent the purchasing plan (or Pooled Separate Account or other

Account holding ``plan assets'')--i.e. the Buying Account. A

``triggering event'' will exist whenever:

(i) JHMLIC or an Affiliate receives a direction from the Customer

to liquidate all of the Customer's Account or interest in an Account,

and the decision to select any particular Timber Asset to be sold is

outside of the control of JHMLIC and its Affiliates;

(ii) JHMLIC or an Affiliate receives a request by the Customer to

liquidate a specified timber property held in the Customer's Account,

and the decision to liquidate the Timber Asset is outside of the

control of JHMLIC and its Affiliates; or

(iii) a liquidation of all of the assets held in the Selling

Account, or a particular property held by such Account, is required

under the terms of the investment contract, insurance contract or

investment guidelines governing the Account, and the decision to select

any particular Timber Asset to be sold is outside of the control of

JHMLIC and its Affiliates; and

(c) Where the proposed transaction involves two ERISA-Covered Plans

(or Pooled Separate Accounts or other Accounts holding ``plan assets''

subject to the Act) and there is no ``triggering event'' as described

above in Condition 3(b), or where a Pooled Separate Account in which a

Hancock Plan participates is the Selling Account, an Independent

Fiduciary will be appointed by JHMLIC or an Affiliate for each Account

involved in the transaction.

4. With respect to each transaction requiring the participation of

an Independent Fiduciary (as described in Condition 3 above), the

purchase and sale of a Timber Asset shall not be consummated unless the

Independent Fiduciary determines that the transaction, including the

price to be paid or received for the property, would be in the best

interest of the particular Account involved based on the investment

policies and objectives of such Account.

5. Each Account which buys or sells a particular Timber Asset pays

no more than or receives no less than the fair market value of the

Timber Asset at the time of the transaction, as determined by a

qualified independent real estate appraiser experienced with the

valuation of timber properties similar to the type involved in the

transaction.

6. Each purchase or sale of a Timber Asset between Accounts is a

one-time cash transaction.

7. Each Account involved in the purchase or sale of a Timber Asset

pays no real estate commissions or brokerage fees relating to the

transaction.

8. JHMLIC or an Affiliate acts as a discretionary investment

manager for the assets of the Accounts involved in each transaction,

provided that this condition will not fail to have been met solely

because the Customer retains the right to veto or approve the purchase

or sale of Timber Assets.

9. An Account does not participate in a covered transaction if the

assets of any Hancock Plan(s) in the Account exceed 20 percent of the

total assets of the Account.

10. No purchase or sale transaction is designed to benefit the

interests of one particular Account over another.

11. For purposes of this exemption:

(a) ``Account'' means a Separate Account as defined below,

including a ``Non-Pooled Separate Account'' or a ``Pooled Separate

Account,'' as well as a limited partnership or limited liability

company for which JHMLIC or an

[[Page 71305]]

Affiliate serves as general partner, investment manager or adviser.

(b) ``Timber Asset'' means a fee simple in timberland (and

appurtenant rights), as well as a timber lease or timber deed, provided

that, with respect to any timber lease or timber deed: (i) the

underlying fee simple is owned by a person other than JHMLIC, its

Affiliates, or any Account at the time of sale; and (ii) the entire

deed or lease originally acquired by the Selling Account is sold to the

Buying Account.

(c) ``ERISA-Covered Plan'' is an employee benefit plan as defined

under section 3(3) of the Act;

(d) ``Non-ERISA Plan'' or ``Non-ERISA Customer'' means an entity or

investor not covered by the provisions of Title I of the Act, such as a

governmental plan, a university endowment fund, a charitable foundation

fund or other institutional investor, whose assets are managed in an

Account for which JHMLIC or an Affiliate acts as investment manager;

(e) ``Affiliate'' means any person directly or indirectly through

one or more intermediaries, controlling, controlled by, or under common

control with JHMLIC;

(f) ``Buying Account'' means the Account which seeks to purchase

Timber Assets from another Account;

(g) ``Selling Account'' means the Account which seeks to sell

Timber Assets to another Account;

(h) ``Independent Fiduciary'' means a person or entity with

authority to both review the appropriateness of the proposed

transaction for an Account, that is considered to hold ``plan assets''

subject to the fiduciary responsibility provisions of the Act, based on

the investment policy established for that Account, and to negotiate

the terms of the transaction, including the price to be paid for the

Timber Asset. An individual or firm selected to serve as an Independent

Fiduciary shall meet the following criteria:

(1) The individual or firm may have no current employment

relationship with JHMLIC or an Affiliate, although a prior employment

relationship would not disqualify the individual or firm;

(2) No individual or firm may serve as an Independent Fiduciary

during any year in which gross receipts received from business with

JHMLIC and its Affiliates for that year exceed five (5) percent of such

individual's or firm's gross receipts from all sources for the prior

year;

(3) The individual or firm must be an expert with respect to

timberland valuations;

(4) The individual or firm must have the ability to access (itself

or through persons engaged by it) appropriate timberland sales

comparison data and make appropriate adjustments to the subject

property; and

(5) The individual or firm must not have a criminal record

involving fraud, fiduciary standards, or securities laws violations;

(i) ``Separate Account'' means a segregated asset Account which

receives premiums or contributions from customers, including employee

benefit plans subject to the Act, in connection with group annuity

contracts and funding agreements, with investments held in the name of

JHMLIC, but where the value of the contract or agreement to the

Customer (contractholder) fluctuates with the value of the investment

associated with such Account;

(j) ``Non-Pooled Separate Account'' or ``Non-Pooled Account'' means

a Separate Account established to back a single contract issued to one

Customer, which may be an employee benefit plan subject to the Act;

(k) ``Pooled Separate Account'' or ``Pooled Account'' means a

Separate Account established to back a group of substantially identical

contracts issued to a number of unrelated Customers, including employee

benefits plans subject to the Act; and

(l) ``Customer'' means a person or entity that acts as the

authorized representative for the investor in an Account involved in a

proposed purchase or sale of Timber Assets, that is independent of

JHMLIC and its Affiliates, provided, however, that for any Hancock Plan

(as defined in Paragraph 11(m) below), a ``Customer'' shall mean the

Plan Investment Advisory Committee of JHMLIC.

(m) ``Hancock Plan'' means an employee benefit plan sponsored by

JHMLIC or an Affiliate which invests in an Account.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on June 29, 1998, at 63 FR

35284.

WRITTEN COMMENTS: The applicant (i.e. JHMLIC) submitted a number of

comments on the notice of proposed exemption (the Notice). These

comments, and the modifications to the Notice made by the Department in

response thereto, are discussed below.

First, with respect to the scope of the exemption, JHMLIC requests

that the term ``Account,'' as defined in Paragraph 10 of the Notice, be

expanded to include limited liability companies (LLCs). JHMLIC

represents that LLCs offer several advantages over limited

partnerships, which make LLCs an increasingly popular form of ownership

of investment property. These advantages include more flexibility in

the management of the business than exists with partnerships and more

liquidity in the transferability of an interest in an LLC than in a

limited partnership. JHMLIC states that LLCs would be subject to the

same conditions and safeguards in the requested exemption as

partnerships. For example, the role of the Independent Fiduciary of the

LLC would be the same as its role with respect to a partnership.

Thus, JHMLIC proposes that the Department redefine the term

``Account'' in Paragraph 10(a) of the Notice to include both limited

partnerships and LLCs, and to delete the separate definition of the

term ``Partnership'' contained in Paragraph 10(b) of the Notice.

The Department has modified the definition of the term ``Account''

(see Paragraph 11(a) of this exemption) to reflect the changes

requested by JHMLIC.

Second, with respect to the use of the term ``timber property'' in

the operative language and conditions contained in the Notice, JHMLIC

requests that the relief provided by the exemption cover purchases and

sales of ``Timber Assets'' and that such term should be separately

defined to include both fee simple interests in timber properties and

timber-related assets, such as timber leases and timber deeds.

JHMLIC represents that timber investments often involve the

acquisition and holding of property rights other than fees simple. For

example, timber portfolios routinely include such valuable assets as

timber leases and timber deeds. A timber lease is a contract between a

landowner (the lessor) and another party (the lessee) under which the

lessee is granted the right to use the land for the production of

timber for a specified period of time. Timber leases typically specify

how the land is to be managed and the condition in which the land must

be returned to the lessor at the end of the lease. Timber lessees have

significant rights, including the right to plant, grow and harvest

timber. A timber deed is a contract under which the landowner grants to

a third party the right to harvest existing timber. Typically, the deed

holder is not required to harvest all or any portion of the timber and

its right to do so will be forfeited after a specified period of time.

Timber deeds do not generally involve replanting by the deed holder

either for the benefit of the landowner or the deed holder.

JHMLIC states that timber leases and timber deeds may be bought and

sold

[[Page 71306]]

independently of the underlying fee simple. For example, while an

Account may not own a fee simple on a particular timber property it may

have the contractual right to harvest the timber on that property. The

management and valuation of timber deeds and leases are the province of

the same managers and appraisers who manage and value timberland fees

simple. JHLMIC represents that when an Account invests in timber leases

or deeds, the fee simple interest is held by an unrelated party, not by

another Account or by JHMLIC or an Affiliate. Thus, where an Account

owns the underlying fee simple in a timber property, rather than a

timber lease or timber deed, it retains the right to harvest the timber

and does not assign that right to any other party, including another

Account. In addition, JHMLIC states that if a timber deed or timber

lease is owned by an Account as a Timber Asset, and that deed or lease

is sold to another Account under the conditions of this exemption, the

entire deed or lease originally acquired by the Selling Account will be

sold to the Buying Account. This condition will prevent these timber

deeds and leases from being ``parcelized'' between the various

Accounts.

JHLMIC states further that other property rights, including mineral

rights, easements and recreational leases, are rights that are

appurtenant to the fee simple interest in a timber property. Such

rights are bought and sold, and appraised, as part of the fee. These

rights are currently contemplated by use of the term ``timber

property'' in the Notice. JHMLIC states that it is not seeking to have

the exemption cover the transfer of these rights apart from the

underlying fee simple.

Thus, JHMLIC proposes to add the term ``Timber Asset'' to the

exemption and to define such term to mean a fee simple in timberland

(and appurtenant rights), as well as a timber lease or timber deed,

provided that, with respect to any timber lease or timber deed: (i) the

underlying fee simple is owned by a person other than JHMLIC, its

Affiliates, or any Account at the time of sale; and (ii) the entire

deed or lease originally acquired by the Selling Account is sold to the

Buying Account.

The Department has modified the definitions contained in the

exemption by adding the term ``Timber Asset'' to such definitions,

which is included as the new Paragraph 11(b) above.

Third, with respect to the definition of the term ``Customer'' in

Paragraph 10(l) of the Notice, JHMLIC states that plans sponsored by

JHMLIC and its affiliates (i.e., Hancock Plans) also invest in Timber

Assets through Pooled Separate Accounts maintained by HNRG, JHTRC or

another Affiliate of JHMLIC. Currently, the John Hancock Pension Plan

has interests in three pooled accounts. These interests constitute

15.6%, 10% and 9.9%, respectively, of these Accounts.

JHMLIC states that the Notice, as drafted, would make the exemption

unavailable to these Pooled Separate Accounts merely because a Hancock

Plan has an interest in them. This result occurs because the term

``Customer'' in Paragraph 10(l) of the Notice requires that disclosures

regarding a covered transaction be provided to a person that is

independent of JHMLIC and its Affiliates. In this regard, JHMLIC states

that it is not appropriate to deny an entire Pooled Separate Account

access to the cost savings associated with the covered transactions

merely because a Hancock Plan participates in the Account. JHMLIC

states that the terms and conditions of the exemption, including the

requirements for either a ``triggering event'' (as described in

Condition 3(b) above) or an Independent Fiduciary to act on behalf of

the Account, will address potential conflicts of interest that could be

deemed to exist by virtue of the participation of the Hancock Plans as

investors in such Accounts.

Thus, JHMLIC proposes to redefine the term ``Customer'' to permit

that term to include the Plan Investment Advisory Committee of JHMLIC

for purposes of interests held in an Account by a Hancock Plan. In this

regard, JHMLIC represents that the interests of any Hancock Plan(s) in

such Accounts will not exceed 20 percent of that Account.

As a further safeguard to avoid potential conflicts of interest in

transactions between an Account in which a Hancock Plan participates

and other Accounts, JHMLIC proposes that Paragraph 3(c) of the

exemption require that an Independent Fiduciary be appointed to

represent any Selling Account in which a Hancock Plan participates,

whether or not there exists a ``triggering event'' for the sale of the

Timber Asset by that Account.

Therefore, the Department has modified the definition of the term

``Customer'' (see Paragraph 11(l) above) to allow the Plan Investment

Advisory Committee of JHMLIC to come within the meaning of that term

for purposes of the exemption. In addition, the Department has added

``Hancock Plan'' as a new term which is defined in Paragraph 11(m)

above. The Department has also added a new Paragraph 9 to the exemption

(as discussed further below) which requires that any Hancock Plan

covered under the exemption must be an investor which has interests in

an Account which, when combined with the interests of any other Hancock

Plan, do not exceed 20 percent of that Account. Finally, the Department

has modified the conditions relating to the appointment of an

Independent Fiduciary, as stated in Paragraph 3, to require that an

Independent Fiduciary represent any Selling Account in which a Hancock

Plan participates regardless of whether the sale of a Timber Asset by

that Account results from a ``triggering event''.

Fourth, with respect to the role of an Independent Fiduciary,

JHMLIC represents that in Paragraph 3 of the Notice, the flush language

suggests that in all cases when an Independent Fiduciary is appointed,

the Independent Fiduciary will represent the interests of the ERISA-

Covered Plans. JHMLIC wishes to clarify that in the case of a Pooled

Separate Account the Independent Fiduciary will represent the interests

of the Account, and therefore all of its participating plans--whether

ERISA-Covered Plans or other types of plans. In this regard, the

Department also received two comment letters from the Fire and Police

Pension Association of Colorado, a client of HTRG, requesting that the

role of the Independent Fiduciary for such an Account be clarified in

order to refer to non-ERISA plans.

Thus, JHMLIC proposes that the phrase ``* * * to represent the

interests of the ERISA-Covered Plans'' be deleted from the flush

language of Paragraph 3 of the exemption, noting that the remaining

language, plus subparagraphs (a), (b) and (c) of Paragraph 3, would

then adequately address the role of the Independent Fiduciary for all

investors in an Account.

The Department has modified the language of Paragraph 3 of the

exemption by making the deletion requested by JHMLIC.

Fifth, with respect to an independent appraisal of a timber

property to establish its fair market value, Paragraph 5 of the Notice

requires that the price used for a covered transaction be established

by an ``independent real estate appraiser.'' In this regard, JHMLIC

proposes that the qualifications for the Independent Fiduciary, as

stated in Paragraph 10(h) of the Notice, be modified so that the

Independent Fiduciary is not required to be a qualified appraiser.

JHMLIC states that while the Independent Fiduciary selected may perform

appraisals in the ordinary course of its business, JHMLIC would like to

have the flexibility to engage a fiduciary who is not

[[Page 71307]]

necessarily a qualified appraiser of timber assets. In such instances,

the appraisal required by the exemption (see Paragraph 5 above) would

be obtained by the Independent Fiduciary from another person who is an

independent qualified appraiser.

Thus, JHMLIC proposes that modifications to the definition of the

term ``Independent Fiduciary'' be made to recognize that although the

fiduciary chosen for an Account will be an expert in timberland

valuations (e.g., a forestry consultant), the person chosen may not be

a qualified independent timberland appraiser.

The Department has modified the definition of ``Independent

Fiduciary'' in the exemption in response to JHMLIC's comments. Under

the new definition, the language that was contained in Paragraph

10(h)(3) and (4) of the Notice has been changed to require that an

Independent Fiduciary be an expert in timberland valuations, and have

the ability to access (itself or through persons engaged by it)

appropriate timberland sales comparison data. In addition, the

requirements relating to an Independent Fiduciary being a qualified

independent real estate appraiser who is proficient in timberland

appraisal work (as described in Paragraph 10(h)(3) thru (5) of the

Notice) have been deleted.

In response to further discussions with and comments from JHMLIC,

the Department has also modified the criteria for an individual or firm

to serve as an Independent Fiduciary when that individual or firm

receives a significant amount of compensation from JHMLIC and its

Affiliates for business with those entities during the current calendar

year. Paragraph 10(h)(2) of the Notice stated that the individual or

firm must not have received more than five (5) percent of its annual

gross receipts during the preceding calendar year from business with

JHMLIC and its Affiliates. Under the new definition of ``Independent

Fiduciary'' in Paragraph 11(h)(2) of this exemption, no individual or

firm may serve as an Independent Fiduciary during any year in which

gross receipts received from business with JHMLIC and its Affiliates

for that year exceed five (5) percent of such individual's or firm's

gross receipts from all sources for the prior year.

Sixth, Paragraph 8 of the Notice limits the relief that would be

provided under the exemption to those Accounts over which JHMLIC or an

Affiliate is a ``discretionary investment manager.'' JHMLIC states that

in a few situations involving timber assets managed through entities

other than Separate Accounts, JHMLIC or an Affiliate has discretion to

perform day-to-day management of the assets held in an Account but must

obtain the Customer's approval for the purchase and sale of timber

assets. JHMLIC notes that if the relief requested under the exemption

is limited to Accounts over which JHMLIC has discretionary management

authority, it will not be clear whether the exemption would cover

purchases or sales of Timber Assets held in an Account for which JHMLIC

must obtain the Customer's approval for such transactions.

In response to this comment, the Department has modified Paragraph

8 of the exemption as follows:

* * * JHMLIC or an Affiliate acts as a discretionary investment

manager for the assets of the Accounts involved in each transaction,

provided that this condition will not fail to have been met solely

because the Customer retains the right to veto or approve the

purchase or sale of Timber Assets. [emphasis added]

No other comments, and no requests for a hearing, were received by

the Department.

Accordingly, the Department has determined to grant the exemption

as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

Barclays Bank PLC (Barclays) Located in London, England

[Prohibited Transaction Exemption 98-62; Exemption Application No. D-

10486]

Exemption

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 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 or bank.

(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 the Plan assets involved in the transaction, or 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

[[Page 71308]]

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, wire transfer or similar means, 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) 4 had it remained the record owner of such

securities.

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\4\ 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 the 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 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.

Notwithstanding the foregoing, Barclays or the Foreign Affiliate may,

in the event they fail 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.

(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

[[Page 71309]]

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) Upon request, notice of the proposed exemption and the final

exemption, when available, is provided to any Plan which proposes to

engage in transactions to which the exemptive relief described herein

would apply.

Section III. Definitions

For purposes of this 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: This exemption is effective as of July 31, 1997.

For a more complete statement of the facts and representations

supporting this exemption, refer to the notice of proposed exemption

(the Notice) published on October 6, 1998 at 63 FR 53714.

Written Comments

The Department received one written comment with respect to the

Notice. The comment, which was submitted by Barclays suggested

modifications to the conditional language of the Notice as well as to

the Summary of Facts and Representations (the Summary). These changes

are discussed below.

Consistency With Recent Securities Lending Exemptions

1. Section I.C., Condition (9). In Section I.C. of the Notice,

Condition (9) (at 53716) provides that if a securities loan is

terminated and Barclays or the Foreign Affiliate fails to return such

securities or the equivalent thereof, then the Plan may purchase

securities that are identical to the borrowed securities. In addition,

Barclays or the Foreign Affiliate is required to 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.

To make the provisions of Condition (9) consistent with the

securities lending exemptions granted to Morgan Stanley & Co., (PTE 97-

08, 62 FR 4811, January 31, 1997) and to NatWest Securities Corporation

(PTE 97-57, 62 FR 56203, October 29, 1997), Barclays suggests that the

following sentence be inserted at the end of Condition (9) of Section

I.C.:

Notwithstanding the foregoing, Barclays or the Foreign Affiliate

may, in the event they fail 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.

Barclays notes that the foregoing provision appears in PTE 97-08 at

4812 and in PTE 97-57 at 56204.

2. Representation 10. The third sentence in Representation 10 of

the Summary (at 53718) states that Barclays or the Foreign Affiliate

will be a party in interest with respect to a Plan involved in a

principal transaction by reason of providing services to the Plan or by

reason of a relationship to such service provider. To make this

sentence consistent with PTE 97-8 (at 4811) and PTE 97-57 (at 56204)

Barclays requests that the Department delete this sentence and replace

it with the following:

Further, Barclays represents that it or the Foreign Affiliate

will be a party in interest or disqualified person with respect to

the plan 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 a person described in such sections.

Barclays notes that this change is consistent with PTEs 97-08 (at 4811)

and PTE 97-57 (at 56204) and Section I.A., Condition (3) of the Notice

(at 53715).

3. Section II(g). Section II(g) of the Notice (at 53716) requires

that prior to any Plan's approval of any transaction, the Plan will be

provided with copies of the Notice as proposed and as adopted in final

form. However, Barclays states that neither PTE 97-08 nor PTE 97-57

[[Page 71310]]

contain a similar provision. Therefore, Barclays represents that it

wishes to provide such communications upon request. Accordingly,

Barclays proposes that Section II(g) be deleted and replaced with the

following language:

Upon request, notice of the proposed exemption and the final

exemption, when available, is provided to any Plan which proposes to

engage in transactions to which the exemptive relief described

herein would apply.

Other Clarifications

In addition to the foregoing changes, Barclays requests the

following clarifications to the Notice and the Summary:

1. Section I.A., Condition (1). In Section I.A. of the Notice,

Condition (1) (at 53715) states that Barclays or the Foreign Affiliate

customarily purchases or sells securities in the ordinary course of its

business as a ``broker-dealer.'' Because it is a ``bank,'' Barclays has

requested that the phrase ``or bank'' be inserted at the end of

Condition (1). In addition, Barclays notes that this change is

consistent with Representation 8 of the Summary (at 53718).

2. Section I.B., Condition (1). In Section I.B. of the Notice,

Condition (1) (at 53715) requires that Barclays or the Foreign

Affiliate not be 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.

Barclays requests that this condition be replaced with the

following language which will make it consistent with Representation 12

of the Summary (at 57318):

Barclays or the Foreign Affiliate is not a fiduciary with

respect to the Plan assets involved in the transaction, or no

interest or other consideration is received by Barclays, the Foreign

Affiliate or any of their affiliates in connection with such

extension of credit.

3. Section I.C., Condition (2). In Section I.C. of the Notice

Condition (2) (at 53715) describes the collateralization requirements

with respect to securities loans that are made by a Plan to Barclays or

the Foreign Affiliate. In pertinent part, the condition states that the

Plan may receive securities loan collateral from Barclays or the

Foreign Affiliate, either by physical delivery or by book entry in a

securities depository located in the United States. To make this

language consistent with Representation 17 of the Summary (at 53719),

Barclays requests that the Department revise the language at the

beginning of Condition (2) to read as follows:

The Plan receives from Barclays or the Foreign Affiliate, either

by physical delivery, book entry in a securities depository located

in the United States, wire transfer or similar means * * *.

4. Representation 3. The second sentence of representation 3 of the

Summary (at 53717) discusses principal and extension of credit

transactions engaged in by Barclays and the Foreign Affiliate. It

states that ``such transactions are currently being executed between a

Plan and Barclays or a Plan and a 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).''

To avoid ambiguity, Barclays proposes that this sentence be deleted

and replaced with the following language:

Barclays and the Foreign Affiliate currently engage in the purchase

or sale of securities and extensions of credit in connection with such

purchases and sales of securities in the normal course of their

business as broker-dealers or banks.

5. Representation 6. Representation 6 of the Summary (at 53717-18)

describes Rule 15a-6 of the 1934 Act and its applicability to and

compliance by Barclays and the Foreign Affiliate with the Rule's

requirements. Barclays requests that references to the term ``U.S.

major institutional investor'' and references to the term ``major

institutional investor'' be changed to ``major U.S. institutional

investor'' in order to be consistent with Rule 15a-6.

In addition, for purposes of clarification, Barclays requests that

the following sentence be inserted at the beginning of Footnote 15 of

the Summary (at 53717):

Note that the categories of entities that qualify as ``major

U.S. institutional investors'' has been expanded by a Securities and

Exchange Commission No-Action letter.

Further, to avoid ambiguity, Barclays proposes that the reference

to ``paragraphs (a) and (b)'' above referred to in Footnote 16 of the

Summary (at 53718) be changed to read ``subparagraphs (a) and (b) of

Representation 6.''

The Department concurs with the modifications and clarifications to

the Notice that have been suggested by Barclays and has, therefore,

made all of the requested changes. For further information regarding

Barclays's comment or other matters discussed herein, interested

persons are encouraged to obtain copies of the exemption application

file (Exemption Application No. D-10486) the Department is maintaining

in this case. The complete application file, as well as all

supplemental submissions received by the Department, are made available

for public inspection in the Public Documents Room of the Pension and

Welfare Benefits Administration, Room N-5638, U.S. Department of Labor,

200 Constitution Avenue, NW, Washington, DC 20210.

Accordingly, after giving full consideration to the entire record,

including the written comment provided by the Barclays, the Department

has made the aforementioned changes to the Notice and has decided to

grant the exemption subject to the modifications or clarifications

described above.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional 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

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

[[Page 71311]]

Signed at Washington, D.C., this 21st day of December, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-34109 Filed 12-23-98; 8:45 am]

BILLING CODE 4510-29-P