Proposed Exemptions; The Chase Manhattan Bank (CMB)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10694, et al.]

Proposed Exemptions; The Chase Manhattan Bank (CMB)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

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.

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

three copies) should be sent to the Pension and Welfare Benefits

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

Department of Labor, 200 Constitution Avenue, 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.

The Chase Manhattan Bank (CMB); Located in New York, NY

[Application No. D-10694]

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 1 and in accordance with the procedures set forth in 29

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

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

\1\ For purposes of this proposed exemption, references to

specific provisions of Title I of the Act, unless otherwise

specified, refer also to the corresponding provisions of the Code.

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

Section I. Covered Transactions

If the exemption is granted, the restrictions of sections

406(a)(1)(A) through (D) and 406(b)(1) and (2) of the Act and the

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

by reason of section 4975(c)(1)(A) through (E) of the Code, shall not

apply to the lending of securities to affiliates of The Chase Manhattan

Corporation (CMC), which are engaged in CMC's capital markets line of

business (Global Capital Markets), by employee benefit plans (the

Client Plans), including commingled investment funds holding Client

Plan assets, for which CMC, through its Global Investor Services line

of Business, as operated through CMB and its affiliates (GIS), acts as

directed trustee or custodian, and for which CMC through its Global

Securities Lending Division or any other similar division of CMB or a

U.S. affiliate of CMC (collectively, GSL) acts as securities lending

agent or sub-agent and (2) to the receipt of compensation by GSL in

connection with the proposed transactions, provided the general

conditions set forth below in Section II are met.

Section II. General Conditions

(a) This exemption applies to loans of securities to Global Capital

Markets, as operated through CMB in the United States (Global Capital

Markets/U.S. or the U.S. Affiliated Borrower) and in the following

foreign countries: the United Kingdom (Global Capital Markets/U.K.),

Canada (Global Capital Markets/Canada), Australia (Global Capital

Markets/Australia), Japan (Global Capital Markets/Japan) (collectively,

the Foreign Affiliated Borrowers). Global Capital Markets will also

include other companies or their successors which are affiliated with

either CMB or CMC within these countries. 2

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

\2\ Unless otherwise noted, Global Capital Markets will consist

collectively of the above referenced entities.

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

(b) For each Client Plan, neither GIS, Global Capital Markets, GSL,

nor any other division or affiliate of CMC has or exercises

discretionary authority or control with respect to the investment of

the assets of Client Plans involved in the transaction (other than with

respect to the lending of securities designated by an independent

fiduciary of a Client Plan as being available to lend and the

investment of cash collateral after securities have been loaned and

[[Page 34282]]

collateral received), or renders investment advice (within the meaning

of 29 CFR 2510.3-21(c)) with respect to those assets, including

decisions concerning a Client Plan's acquisition and disposition of

securities available for loan.

(c) Before a Client Plan participates in a securities lending

program and before any loan of securities to Global Capital Markets is

effected, a Client Plan fiduciary which is independent of Global

Capital Markets must have--

(1) Authorized and approved a securities lending authorization

agreement (the Agency Agreement) with GSL, where GSL is acting as the

securities lending agent;

(2) Authorized and approved the primary securities lending

authorization agreement (the Primary Lending Agreement) with the

primary lending agent where GSL is lending securities under a sub-

agency agreement (the Sub-Agency Agreement) with the primary lending

agent; 3 and

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

\3\ The Department, herein, is not providing exemptive relief

for securities lending transactions engaged in by primary lending

agents, other than GSL, beyond that provided pursuant to Exemption

(PTE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754,

May 19, 1987) and PTE 82-63 (47 FR 14804, April 6, 1982).

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

(3) Approved the general terms of the securities loan agreement

(the Loan Agreement) between such Client Plan and Global Capital

Markets, the specific terms of which are negotiated and entered into by

GSL.

(d) Each loan of securities by a Client Plan to Global Capital

Markets is at market rates and terms which are at least as favorable to

such Client Plan as if made at the same time and under the same

circumstances to an unrelated party.

(e) The Client Plan may terminate the agency or sub-agency

arrangement at any time without penalty to such Client Plan on five

business days notice whereupon Global Capital Markets delivers

securities identical to the borrowed securities (or the equivalent in

the event of reorganization, recapitalization or merger of the issuer

of the borrowed securities) to the Client Plan within--

(1) The customary delivery period for such securities;

(2) Five business days; or

(3) The time negotiated for such delivery by the Client Plan and

Global Capital Markets, whichever is less.

(f) The Client Plan receives from Global Capital Markets (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 or before the day the loaned securities are delivered to

Global Capital Markets, collateral consisting of cash, securities

issued or guaranteed by the United States Government or its agencies or

instrumentalities, or irrevocable United States bank letters of credit

issued by a U.S. bank, which is a person other than Global Capital

Markets or an affiliate thereof, or any combination thereof, or other

collateral permitted under PTE 81-6 (as amended from time to time or,

alternatively, any additional or superseding class exemption that may

be issued to cover securities lending by employee benefit plans),

having, as of the close of business on the preceding business day, a

market value (or, in the case of a letter of credit, a stated amount)

initially equal to at least 102 percent of the market value of the

loaned securities.

(g) If the market value of the collateral on the close of trading

on a business day is less than 100 percent of the market value of the

borrowed securities at the close of business on that day, Global

Capital Markets delivers additional collateral on the following day

such that the market value of the collateral again equals 102 percent.

(h) The Loan Agreement gives the Client Plan a continuing security

interest in, title to, or the rights of a secured creditor with respect

to the collateral and a lien on the collateral and GSL monitors the

level of the collateral daily.

(i) Before entering into a Loan Agreement, Global Capital Markets

furnishes GSL the most recently available audited and unaudited

statements of the financial condition of the applicable borrower within

Global Capital Markets. Such statements are, in turn, provided by GSL

to the Client Plan. At the time of the loan, Global Capital Markets

gives prompt notice to the Client Plan fiduciary of any material

adverse change in the borrower's financial condition since the date of

the most recent financial statement furnished to the Client Plan. In

the event of any such changes, GSL requests approval of the Client Plan

to continue lending to Global Capital Markets before making any such

additional loans. No new securities loans will be made until approval

is received and each loan constitutes a representation by Global

Capital Markets that there has been no such material adverse change.

(j) In return for lending securities, the Client Plan either--

(1) Receives a reasonable fee, which is related to the value of the

borrowed securities and the duration of the loan; or

(2) Has the opportunity to derive compensation through the

investment of cash collateral. (In the case of cash collateral, the

Client Plan may pay a loan rebate or similar fee to Global Capital

Markets if such fee is not greater than the fee the Client Plan would

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

(k) All procedures regarding the securities lending activities

conform to the applicable provisions of PTEs 81-6 and PTE 82-63 (as

amended from time, or alternatively, any additional or superseding

class exemption that may be issued to cover securities lending by

employee benefit plans).

(l) If Global Capital Markets defaults on the securities loan or

enters bankruptcy, the collateral will not be available to Global

Capital Markets or its creditors, but will be used to make the Client

Plan whole. In this regard,

(1) In the event a Foreign Affiliated Borrower defaults on a loan,

CMB will liquidate the loan collateral to purchase identical securities

for the Client Plan. If the collateral is insufficient to accomplish

such purchase, CMB will indemnify the Client Plan for any shortfall in

the collateral plus interest on such amount and any transaction costs

incurred (including attorney's fees of the Client Plan for legal

actions arising out of the default on the loans or failure to indemnify

properly under this provision). Alternatively, if such identical

securities are not available on the market, the GSL will pay the Client

Plan cash equal to--

(i) The market value of the borrowed securities as of the date they

should have been returned to the Client Plan, plus

(ii) All the accrued financial benefits derived from the beneficial

ownership of such loaned securities as of such date, plus;

(iii) Interest from such date to the date of payment. The lending

Client Plans will be indemnified in the United States for any loans to

the Foreign Affiliated Borrowers.

(2) In the event the U.S. Affiliated Borrower defaults on a loan,

CMB will liquidate the loan collateral to purchase identical securities

for the Client Plan. If the collateral is insufficient to accomplish

such purchase, either CMB or the U.S. Affiliated Borrower will

indemnify the Client Plan for any shortfall in the collateral plus

interest on such amount and any transaction costs incurred (including

attorney's fees of the Client Plan for legal actions arising out of the

default on the loans or failure to indemnify property under this

provision).

[[Page 34283]]

(m) The Client Plan receives the equivalent of all distributions

made to holders of the borrowed securities during the term of the loan,

including all interest, dividends and distributions on the loaned

securities during the loan period.

(n) Prior to any Client Plan's approval of the lending of its

securities to Global Capital Markets, copies of the notice of proposed

exemption and the final exemption, if granted, are provided to the

Client Plan.

(o) Each Client Plan receives a monthly report with respect to its

securities lending transactions, including but not limited to the

information described in Representation 24 of the proposed exemption,

so that an independent fiduciary of the Client Plan may monitor the

securities lending transactions with Global Capital Markets.

(p) Only Client Plans with total assets having an aggregate market

value of at least $50 million are permitted to lend securities to

Global Capital Markets; provided, however, that--

(1) In the case of two or more Client Plans which are maintained by

the same employer, controlled group of corporations or employee

organization (the Related Client Plans), whose assets are commingled

for investment purposes in a single master trust or any other entity

the assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the

Plan Asset Regulation), which entity is engaged in securities lending

arrangements with Global Capital Markets, the foregoing $50 million

requirement shall be deemed satisfied if such trust or other entity has

aggregate assets which are in excess of $50 million; provided that if

the fiduciary responsible for making the investment decision on behalf

of such master trust or other entity is not the employer or an

affiliate of the employer, such fiduciary has total assets under its

management and control, exclusive of the $50 million threshold amount

attributable to plan investment in the commingled entity, which are in

excess of $100 million.

(2) In the case of two or more Client Plans which are not

maintained by the same employer, controlled group of corporations or

employee organization (the Unrelated Client Plans), whose assets are

commingled for investment purposes in a group trust or any other form

of entity the assets of which are ``plan assets'' under the Plan Asset

Regulation, which entity is engaged in securities lending arrangements

with Global Capital Markets, the foregoing $50 million requirement is

satisfied if such trust or other entity has aggregate assets which are

in excess of $50 million (excluding the assets of any Client Plan with

respect to which the fiduciary responsible for making the investment

decision on behalf of such group trust or other entity or any member of

the controlled group of corporations including such fiduciary is the

employer maintaining such Plan or an employee organization whose

members are covered by such Plan). However, the fiduciary responsible

for making the investment decision on behalf of such group trust or

other entity--

(i) Has full investment responsibility with respect to plan assets

invested therein; and

(ii) Has total assets under its management and control, exclusive

of the $50 million threshold amount attributable to plan investment in

the commingled entity, which are in excess of $100 million.

(In addition, none of the entities described above are formed for

the sole purpose of making loans of securities.)

(q) With respect to each successive two week period, on average, at

least 50 percent or more of the outstanding dollar value of securities

loans negotiated on behalf of Client Plans by GSL, in the aggregate,

will be to unrelated borrowers.

(r) In addition to the above, all loans involving Foreign

Affiliated Borrowers within Global Capital Markets have the following

supplemental requirements:

(1) Such Foreign Affiliated Borrower is registered as a bank or

broker-dealer with--

(i) The Financial Services Authority or the Securities and Futures

Authority, in the case of Global Capital Markets/U.K.;

(ii) The Office of the Superintendent of Financial Institutions

(OSFI), or the Ontario Securities Commission and/or the Investment

Dealers Association, in the case of Global Capital Markets/Canada;

(iii) The Australian Prudential Regulation Authority (APRA), or the

Australian Securities & Investments Commission and/or the Australian

Stock Exchange Limited, in the case of Global Capital Markets/

Australia; and

(iv) The Ministry of Finance and/or the Tokyo Stock Exchange, in

the case of Global Capital Markets/Japan.

(2) Such broker-dealer or bank is in compliance with all applicable

provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities

Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-

dealers a limited exemption from United States registration

requirements;

(3) All collateral is maintained in United States dollars or

dollar-denominated securities or letters of credit of U.S. banks or any

combination thereof, or other collateral permitted under PTE 81-6 (as

amended from time to time, or alternatively, any additional or

superseding class exemption that may be issued to cover securities

lending by employee benefit plans);

(4) All collateral is held in the United States;

(5) The situs of the Loan Agreement is maintained in the United

States;

(6) The lending Client Plans are indemnified by CMB in the United

States for any transactions covered by this exemption with the Foreign

Affiliated Borrower so that the Client Plans do not have to litigate in

a foreign jurisdiction nor sue the Foreign Affiliated Borrower to

realize on the indemnification; and

(7) Prior to the transaction, each Foreign Affiliated Borrower

enters into a written agreement with GSL on behalf of the Client Plan

whereby the Foreign Affiliated Borrower consents to service of process

in the United States and to the jurisdiction of the courts of the

United States with respect to the transactions described herein.

(s) CMB or Chase Securities Inc. (CSI) maintains, or causes to be

maintained within the United States for a period of six years from the

date of such transaction, in a manner that is convenient and accessible

for audit and examination, such records as are necessary to enable the

persons described in paragraph (t)(1) to determine whether the

conditions of the 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 CMB or CSI, the

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

and

(2) No party in interest other than CMB or CSI 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 below by paragraph (t)(1).

(t)(1) Except as provided in subparagraph (t)(2) of this paragraph

and notwithstanding any provisions of subsections (a)(2) and (b) of

section 504 of the Act, the records referred to in paragraph (s) are

unconditionally available at their customary location during normal

business hours by:

(i) Any duly authorized employee or representative of the

Department, the Internal Revenue Service or the Securities and Exchange

Commission (the SEC);

[[Page 34284]]

(ii) Any fiduciary of a participating Client Plan or any duly

authorized representative of such fiduciary;

(iii) Any contributing employer to any participating Client Plan or

any duly authorized employee representative of such employer; and

(iv) Any participant or beneficiary of any participating Client

Plan, or any duly authorized representative of such participant or

beneficiary.

(t)(2) None of the persons described above in paragraphs

(t)(1)(ii)-(t)(1)(iv) of this paragraph (t)(1) are authorized to

examine the trade secrets of CMB, the U.S. Affiliated Borrowers, or the

Foreign Affiliated Borrowers or commercial or financial information

which is privileged or confidential.

III. Definitions

For purposes of this proposed exemption,

(a) The terms ``CMB'' and ``CMC'' as referred to herein in Sections

I and II, refer to The Chase Manhattan Bank and its parent, The Chase

Manhattan Corporation.

(b) The term ``affiliate'' means any entity now or in the future,

directly or indirectly, controlling, controlled by, or under common

control with CMC or its successors. (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.)

(c) The term ``U.S. Affiliated Borrower'' means an affiliate of CMC

that is a bank supervised by the United States or a State, or a broker-

dealer registered under the 1934 Act.

(d) The term ``Foreign Affiliated Borrower'' means an affiliate of

CMC that is a bank or a broker-dealer which is supervised by--

(1) The Financial Services Authority or the Securities and Futures

Authority in the United Kingdom;

(2) OSFI, or the Ontario Securities Commission and/or the

Investment Dealers Association in Canada;

(3) APRA, or the Australian Securities & Investments commission

and/or the Australian Stock Exchange in Australia; and

(4) The Ministry of Finance and/or the Tokyo Stock Exchange in

Japan.

Summary of Facts and Representations

1. CMB is a wholly owned subsidiary of CMC, a bank holding company

organized under the laws of the State of Delaware. As a New York bank

and a member of the Federal Reserve System, CMB is a ``bank'' as

defined in both section 202(a)(2) of the Investment Advisers Act of

1940 (the Advisers Act) and section 581 of the Code.4 As of

March 31, 1998, CMB's total assets were $299 billion, of which $93.5

billion (or 31 percent) represented investment securities and money

market assets and $125 billion (or 42 percent) represented loans.

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

\4\ In relevant part, section 202(a)(2) of the Advisers Act and

section 581 of the Code state that a ``bank'' is a banking

institution, bank or trust company incorporated and doing business

under the laws of the United States.

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

2. GIS, the investor services line of business of CMC, as operated

through CMB and certain of its affiliates, provides custodial services,

trustee and related services to its customers. In this regard, GIS had

more than $4.45 trillion of assets under custody and directed

trusteeship as of December 31, 1997. As directed trustee or custodian,

GIS services $412 billion of assets for U.S. pension plans, government

plans, endowments and foundations. In addition, GIS currently acts as

custodian for $751 billion of mutual fund assets.

3. GSL, which is comprised collectively of similar divisions of CMB

or U.S. affiliates of CMC, is the securities lending line of business

of CMC. It provides securities lending services to many of CMB's

institutional clients. In this regard, GSL, on behalf of CMB's

securities lending agents, negotiates the terms of loans with borrowers

pursuant to a client-approved form of loan agreement, the terms of

which may be modified from time to time with the approval of the

client, and otherwise acts as a liaison between the lender and the

borrower to facilitate the lending transaction. As securities lending

agent, GSL has responsibility for monitoring receipt of all required

collateral and for marking such collateral to market daily so that

adequate levels of collateral are maintained. Further, to the extent

agreed upon with the client, GSL is responsible for investing the cash

collateral after securities have been loaned and cash collateral

received. Finally, GSL monitors and evaluates, on a continuing basis,

the performance and creditworthiness of the borrowers of securities.

In addition, GSL may be retained from time to time by other primary

securities lending agents to provide securities lending services in a

sub-agency capacity with respect to portfolio securities of the clients

of such primary lending agents. As securities lending agent, GSL's role

in the lending transaction (i.e., negotiating the terms of loans with

borrowers pursuant to a client-approved form of loan agreement, the

terms of which may be modified from time to time with the approval of

the client, monitoring receipt of collateral, marking to market

required collateral, and investing cash collateral) parallels the role

under lending transactions in which GSL acts as primary lending agent

on behalf of its clients.5

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

\5\ As noted previously, the Department is not providing

exemptive relief herein for securities lending transactions that are

engaged in by primary lending agents, other than GSL and its

affiliates beyond that provided by PTEs 81-6 and 82-63.

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

The borrowers with whom GSL usually transacts business as agent for

the lender are typically U.S. broker-dealers who use borrowed

securities to satisfy their trading requirements or to ``re-lend''

securities to other broker-dealers and others who need a particular

security for various periods of time. All such borrowings by U.S.

broker-dealers are required to conform to the Federal Reserve Board's

Regulation T, to the extent applicable.

4. Global Capital Markets is one of the principal lines of business

of CMC and its affiliates. Global Capital Markets acts through CMB and

certain of its affiliates located in the United States as well as

through certain Foreign Affiliated Borrowers that are located abroad.

In other words, Global Capital Markets conducts its business through

these different legal entities depending upon the jurisdiction and the

specific product being sold. The entities currently comprising Global

Capital Markets are Global Capital Markets/U.S., Global Capital

Markets/U.K., Global Capital Markets/Canada, Global Capital Markets/

Australia and Global Capital Markets/Japan. A description of each of

these entities is presented below.

(a) Global Capital Markets/U.S. currently includes CMB and CSI, a

U.S. broker-dealer registered with the SEC and located in New York, New

York. However, in the future, it may include other broker-dealer

entities that Global Capital Markets has established or acquired in the

United States and operates as separate companies.

(b) Global Capital Markets/U.K. currently consists of Chase

Manhattan International Limited (CMIL) and CMB's London branch (CMB/

London). CMIL is a merchant bank based in London, England and it is

supervised by the Financial Services Authority. CMIL is also a member

of the Securities and Futures Authority and is subject to regulation by

this organization with respect to its broker-dealer activities.

CMB/London is an office of CMB which was authorized by the former

Bank of England to accept deposits in the United Kingdom. CMB/London is

a listed institution under Section 43 of the Financial Services Act,

the Money

[[Page 34285]]

Market Regulations. In addition, CMB/London is regulated by the

Securities and Futures Authority in the conduct of investment business

in the United Kingdom. In mid-1997, the Financial Services Authority

took over the supervision of banks in the United Kingdom including the

Money Market Regulations. CMB/London is also subject to annual

examination by bank examiners from the Federal Reserve Bank of New York

and the State of New York.

(c) Global Capital Markets/Canada currently consists of Chase

Securities Canada Inc. (CSCI), a broker-dealer located in Toronto. This

entity is subject to regulation by the Ontario Securities Commission

and the Investment Dealers Association.6 In the future,

Global Capital Markets Canada may be expanded to include CMB's banking

affiliates that are based in Canada. These entities are subject to

regulation in Canada by OSFI.

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

\6\ CMB represents that Chase Securities Canada Inc., which is

currently inactive, is the likely Canadian vehicle to participate in

Global Capital Markets if it resumes business in Canada.

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

(d) Global Capital Markets/Australia currently consists of Chase

Securities Australia, Limited (CSA), which is a broker-dealer located

in Sydney. CSA holds a dealers license and is regulated by the

Australian Securities & Investments Commission. In the future, Global

Capital Markets/Australia may be expanded to include CMB's banking

affiliates that are based in Australia. These entities will be subject

to regulation by APRA.

(e) Global Capital Markets/Japan currently consists of Chase

Securities Japan Limited (CSJL), a broker-dealer based in Tokyo, Japan.

CSJL is subject to regulation by Japan's Ministry of Finance and the

Tokyo Stock Exchange. In the future, Global Capital Markets/Japan may

be expanded to include CMB's banking affiliates that are based in

Japan. These entities will be subject to regulation by the Ministry of

Finance.

Global Capital Markets also is a borrower of securities and acts in

this capacity after full disclosure and consent with respect to many of

its institutional clients that included public pension plans which are

not covered by the Act. Global Capital Markets, as borrower, uses

borrowed securities to meet its obligations to deliver securities in

connection with its short sales, trade fails 7 or other

similar situations and to engage in repurchase transactions with third

parties. Acting as principal, Global Capital Markets actively engages

in the borrowing and lending of securities with an outstanding loan

volume of $48 billion as of May 31, 1998.

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

\7\ According to CMB, a trade fail occurs when the seller of a

security is unable to deliver the security to the buyer on the

settlement date. Typically, this may occur when a security being

sold is on loan or held by another custodian at the time a sale is

executed and cannot be delivered to the seller before the settlement

date. Under these circumstances, it is common for the seller of the

security to borrow the security being sold in order to avoid a

breach of its obligation to deliver securities to the buyer on the

settlement date.

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

GSL currently does not lend to Global Capital Markets the

securities of any of CMB's trust or custody clients covered under the

Act. Although as noted above, after full disclosure and consent, GSL

does lend securities to Global Capital Markets for certain of its

clients which are not covered by the Act. Global Capital Markets and

GSL have each developed an accounting system and safeguards to service

the needs of their respective client bases. Whenever trades are

effected between GSL, acting as securities lending agent, and Global

Capital Markets, as borrower, such trades are accomplished in the same

manner as between non-affiliated, independent third parties. In this

regard, such trades take place pursuant to an established protocol,

primarily over the telephone and through computer trading screens used

by all participants in the industry in accordance with established

protocol.8

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

\8\ In this regard, CMB maintains a set of procedures and

policies designed to eliminate any sharing of client portfolio

information between the personnel in its commercial banking and

trust departments.

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

5. GSL would like to offer employee benefit plans that are covered

under the provisions of the Act and for which GSL serves as securities

lending agent (i.e., the Client Plans) 9 the opportunity to

participate in a securities lending program including Global Capital

Markets as a potential borrower. In addition, CMB proposes that GSL and

Global Capital Markets receive compensation in connection with such

securities lending transactions. In this regard, CMB would like to

offer Client Plans the opportunity to add as potential borrowers Global

Capital Markets/U.S., Global Capital Markets/U.K., Global Capital

Markets/Canada, Global Capital Markets/Australia and Global Capital

Markets/Japan.

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

\9\ For the sake of simplicity, future references to GSL's

performance of services as securities lending agent should be deemed

to include its activities as securities lending sub-agent and

references to Client Plans should be deemed to refer to plans for

which GSL is acting as sub-agent.

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

For each Client Plan, neither CMB, Global Capital Markets, GSL nor

any other division or affiliate of CMB will have or exercise

discretionary authority or control with respect to the investment of

Client Plan assets in the transaction (other than with respect to the

investment of cash collateral after securities have been loaned and

collateral received) or render investment advice [within the meaning of

29 CFR 2510.3-12(c)] with respect to those assets, including decisions

concerning a Client Plan's acquisition or disposition of securities

available for loan. Accordingly, GSL will not be in a position to

influence the portfolio holdings of Client Plans in a manner that might

increase or decrease the securities available for lending to Global

Capital Markets (or any other borrower). Thus, GSL's discretion will be

limited to activities such as negotiating the terms of the securities

loans with Global Capital Markets and (to the extent granted by the

Client Plan fiduciary) investing any cash collateral received in

respect of the loans.

Because, under the proposed arrangement, GSL would have discretion

to lend Client Plan securities to Global Capital Markets, and because

both GSL and parts of Global Capital Markets are divisions of CMB, the

lending of securities to Global Capital Markets by a Client Plan for

which GSL serves as securities lending agent (or sub-agent) may be

outside the scope of relief provided by PTE 81-6 and PTE 82-

63.10 Further, loans to Foreign Affiliated Borrowers within

Global Capital Markets would be outside of the relief granted in PTE

81-6.

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

\10\ PTE 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

certain broker-dealers or banks which are parties in interest.

PTE 82-63 provides an exemption under specified conditions from

section 406(b)(1) of the Act and section 4975(c)(1)(E) of the Code

for the payment of compensation to a plan fiduciary for services

rendered in connection with loans of plan assets that are

securities.

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

Therefore, several safeguards, described more fully below, are

incorporated in the application in order to ensure the protection of

the Client Plan assets involved in the transactions. In addition, the

applicants represent that the proposed lending program incorporates the

conditions contained in PTE 81-6 and PTE 82-63 and will be in

compliance with all applicable securities laws of the United States.

6. Although not registered with the United States SEC as broker-

dealers, the Foreign Affiliated Borrowers within Global Capital Markets

are subject to the rules, regulations and membership requirements of

their respective regulatory entities identified above. For example,

CMIL, the broker-dealer entity within Global Capital Markets/U.K. is

[[Page 34286]]

subject to the rules, regulations and membership requirements of the

Securities and Futures Authority. CSCI, the broker-dealer entity within

Global Capital Markets/Canada is governed by the rules, regulations and

membership requirements of the Ontario Securities Commission and the

Investment Dealers Association. CSA, the broker-dealer entity within

Global Capital Markets/Australia is governed by the licensing

requirements of the Australian Securities & Investments Commission.

CSJL, the broker-dealer entity within Global Capital Markets/Japan is

governed by the rules, regulations and membership requirements of the

Ministry of Finance and the Tokyo Stock Exchange.11

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

\11\ The Securities and Futures Authority, the Ministry of

Finance, the Tokyo Stock Exchange, the Australian Securities &

Investments Commission, the Australian Stock Exchange Limited, the

Ontario Securities Commission and the Investment Dealers Association

are collectively referred to herein as the Foreign Broker-Dealer

Regulatory Entities.

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

The Foreign Affiliated Borrowers within Global Capital Markets

which are broker-dealers are subject to rules relating to minimum

capitalization, reporting requirements, periodic examinations, client

money and safe custody rules and books and records requirements with

respect to client accounts. These rules and regulations set forth by

the Foreign Broker-Dealer Regulatory Entities and the SEC share a

common objective: The protection of the investor by the regulation of

the securities industry. The rules promulgated by the Foreign Broker-

Dealer Regulatory Entities require each firm which employs registered

representatives or registered traders to have a positive tangible net

worth and be able to meet its obligations as they may fall due. In

addition, the rules of the Foreign Broker-Dealer Regulatory Entities

set forth comprehensive financial resource and reporting/disclosure

rules regarding capital adequacy. Further, to demonstrate capital

adequacy, the rules of the Foreign Broker-Dealer Regulatory Entities

impose reporting/disclosure requirements on broker-dealers with respect

to risk management, internal controls, and transaction reporting and

recordkeeping requirements to the effect that required records must be

produced at the request of the Foreign Broker-Dealer Regulatory

Entities. Finally, the rules and regulations of the Foreign Broker-

Dealer Regulatory Entities impose potential fines and penalties on

broker-dealers which establish a comprehensive disciplinary system.

7. Similarly, Global Capital Markets/U.K. is also subject to

regulation in the United Kingdom by the Financial Services Authority,

the successor regulator to the Bank of England. The Financial Services

Authority issues licenses to banks in the United Kingdom, issues

directives to address violations by or irregularities involving such

banks, requires information from a bank or its auditor regarding

supervisory matters and revokes bank licenses. The Financial Services

Authority has established procedures for monitoring the activities of

CMB in the United Kingdom through various statutory and regulatory

standards. Among these standards are requirements for adequate internal

controls, oversight and administration. On a recurring basis, CMB will

be required to provide the Financial Services Authority with

information regarding its activities in the United Kingdom, profit and

loss, balance sheet, large exposures, foreign exchange exposures and

country risk exposure. The regulator responsible for CMB's capital

adequacy is the Board of Governors of the Federal Reserve System (the

Board).

In addition, banks which may comprise Global Capital Markets/Canada

will be subject to the rules of OSFI, an entity that licenses and

regulates banks established in Canada as deposit-taking subsidiaries.

OSFI licenses banks, issues directives to address violations by or

irregularities involving a bank, requires information from the bank or

its auditors regarding supervisory matters and revokes bank licenses.

Moreover, OSFI has established procedures for monitoring the

activities of Canadian banks through various statutory and regulatory

standards. Among those standards are requirements for capital adequacy,

adequate internal controls, oversight and administration. On a

recurring basis, a bank comprising Global Capital Markets/Canada will

be required to provide OSFI with information regarding its activities

in Canada, profit and loss, balance sheet, large exposures and foreign

exchange exposures.

Legislation is pending in Canada which would permit a foreign bank

to establish a branch in Canada. Under the proposed rule, the Minister

of Finance would authorize the establishment of the branch and OSFI

would license the bank branch to carry on business and may revoke the

license. The bank branch would be required to have a minimum amount of

unencumbered assets in Canada equal to a percentage of branch

liabilities and must satisfy capital adequacy rules. Branches accepting

deposits would be subject to a yearly audit by an external auditor and

examination by OSFI.

APRA, which has taken over the bank supervisory duties of the

Reserve Bank of Australia, will license and regulate banks comprising

Global Capital Markets/Australia. APRA has the power to issue and

revoke bank licenses. In addition, APRA may issue directives to address

violations by or irregularities involving banks and it requires

information from a bank or its auditors regarding supervisory matters.

APRA has established procedures for monitoring the activities of banks

that will comprise Global Capital Markets/Australia through various

statutory and regulatory standards. Among those standards are

requirements for capital adequacy, internal controls, oversight and

administration. On a recurring basis, banks comprising Global Capital

Markets/Australia will be required to provide APRA with information

regarding their activities in Australia, profit and loss, balance

sheets and large exposures.

APRA's licensing and supervision of Global Capital Markets/

Australia foreign bank branches is similar to that of locally-

incorporated banks. While APRA monitors credit risk concentrations of

foreign bank branches, endowed capital in Australia and capital-based

large risk exposure limits are the responsibility of the home

supervisor which is the Board.12

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

\12\ For a description of the Ministry of Finance, which

regulates both banks and broker-dealers in Japan, see

Representations 3 and 4 of the Notice of Proposed Exemption for the

Union Bank of Switzerland and UBS Securities, LLC (63 FR 15452,

15455, March 31, 1998).

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

8. Aside from the protections afforded by the Foreign Broker-Dealer

Regulatory Entities and in the case of Global Capital Markets/U.K., the

Financial Services Authority, CMB represents that the Foreign

Affiliated Borrowers will comply with all applicable provisions of Rule

15a-6 of the 1934 Act. Rule 15a-6 provides foreign broker-dealers with

a limited exemption from SEC registration requirements and, as

described below, offers additional protections.13

[[Page 34287]]

Specifically, Rule 15a-6 provides an exemption from U.S. broker-dealer

registration 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

``major U.S. 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 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 Exchange Act of 1933,

as amended. The term ``major U.S. institutional investor'' is defined

in Rule 15a-6(b)(4) as a person that is a U.S. institutional investor

that has total assets in excess of $100 million or 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.14

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

\13\ According to the applicants, 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, the applicants are willing to represent that they will

comply with the applicable provisions and relevant SEC

interpretations and amendments of Rule 15a-6.

\14\ See also SEC No-Action Letter issued to Cleary, Gottlieb,

Steen & Hamilton on April 9, 1997 (hereinafter, the April 9, No-

Action Letter), expanding the definition of the term ``Major U.S.

Institutional Investor.''

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

9. CMB 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 a major U.S. institutional investor must,

among other things--

(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 (upon request or pursuant to agreements

reached between any foreign securities authority, including any

foreign government, and the SEC or the U.S. Government) with any

information or documents within the possession, custody or control

of the foreign broker-dealer, 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 15

through which the transactions with the U.S. institutional and major

U.S. institutional investors are effected to (among other things):

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

\15\ The Foreign Affiliated Borrowers, in lieu of relying on a

U.S. broker-dealer and to the extent permitted by applicable U.S.

securities law, may rely on a U.S. bank or trust company, including

GSL, to perform this role.

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

(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 major U.S. institutional investor in compliance with

Rule 15c3-3 of the 1934 Act (Customer Protection--Reserves and

Custody of Securities); 16 and

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

\16\ 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 the

Client Plan and a Foreign Affiliated Borrower. CMB 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.

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

(6) Participate in certain oral communications (e.g., telephone

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

institutional investor (not the major U.S. institutional investor),

and accompany the foreign associated person on certain visits with

both U.S. institutional and major U.S. institutional investors. By

virtue of this participation, the U.S. registered broker-dealer

would become responsible for the content of all these

communications. 17

\17\ Under certain circumstances, the foreign associated person

may have direct communications and contact with the U.S.

Institutional Investor. See April 9 SEC No-Action Letter.

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

10. Where GSL is the direct securities lending agent, a fiduciary

of a Client Plan which is independent of CMB, GSL, Global Capital

Markets, and any other division or affiliate of CMB will sign a

securities lending authorization agreement with GSL (i.e., the Agency

Agreement) before that Client Plan participates in a securities lending

program. The Agency Agreement will, among other things, describe the

operation of the lending program, prescribe the form of securities Loan

Agreement to be entered into on behalf of the Client Plan with

borrowers, specify the securities which are available to be loaned and

prescribe that a borrower (including Global Capital Markets) is

required to deliver collateral having a value in excess of the value of

the loaned securities (i.e., not less than 102 percent or, in some

cases, a higher agreed-upon percentage). In addition, the Agency

Agreement will provide that the securities will be marked to market

daily and incorporate a list of permissible borrowers, including the

specified legal entities within Global Capital Markets.

The Agency Agreement will also set forth the basis and rate for

GSL's compensation from a Client Plan for the performance of securities

lending services. As set forth more fully below, in the case of loans

secured by cash collateral, the basis for GSL's compensation will be an

agreed-upon fixed percentage share of return, if any on cash collateral

plus an investment management fee for investing the cash collateral.

The actual income that will be divided between the Client Plan and GSL

will vary each day according to the investment performance from each

loan of securities. With respect to loans secured by non-cash

collateral, GSL's compensation will be an agreed-upon fixed percentage

share of the securities lending fee. GSL's share of the return on cash

collateral and the securities lending fees with respect to any Client

Plan will be negotiated with that Client Plan and thereafter set forth

in the Agency Agreement on the date such agreement is executed.

The Agency Agreement will contain provisions to the effect that if

Global Capital Markets is designated by a Client Plan as an approved

borrower (a) the Client Plan will acknowledge that certain segments of

Global Capital Markets, GSL and GIS are, or may be deemed to be, the

same legal entity, and (b) GSL will represent to the Client Plan that

each and every loan made to Global Capital Markets on behalf of such

Client Plan will be at market rates and will, in no event, be less

favorable to the Client Plan than a loan of such securities, made at

the same time and under the same circumstances, to an unaffiliated

borrower.

A Client Plan may terminate the Agency Agreement at any time,

without penalty to such plan, on five business days'

notice.18

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

\18\ CMB represents that if investments of cash collateral must

be terminated or liquidated prematurely due to a Client Plan's

termination of the Agency Agreement, penalties might be chargeable

by issuers of the investments (or counterparties on the investments)

in accordance with the investment terms.

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

[[Page 34288]]

11. When GSL is lending securities under a sub-agency arrangement,

the primary lending agent will enter into a Primary Lending Agreement

with a fiduciary of a Client Plan that is independent of such primary

lending agent, GSL or Global Capital Markets, before the Client Plan

participates in the securities lending program. Under the terms of the

sub-agency arrangement, it is the responsibility of the primary lending

agent to obtain the approval of the fiduciary of the Client Plan to

such Primary Lending Agreement. The primary lending agent will be

independent of GSL and Global Capital Markets. As CMB will not be a

party to the Primary Lending Agreement, the sub-agency arrangement

between GSL and the primary lending agent will obligate the primary

lending agent to provide assurance that the primary lending agent was

independent of the fiduciary of the Client Plan.

The Primary Lending Agreement will contain substantive provisions

akin to those in the Agency Agreement relating to the description of

the operation of the lending program, use of an approved form of Loan

Agreement, specification of securities which are available to be

loaned, prescription that a borrower is required to deliver collateral

having a specified value in excess of the value of the loaned

securities and a list of approved borrowers (including the various

legal entities comprising Global Capital Markets). The Primary Lending

Agreement will specifically authorize the primary lending agent to

appoint sub-agents, including GSL, to facilitate the performance of

securities lending agency functions. Where GSL is appointed to act as a

sub-agent, GSL will require that the primary lending agent represent to

GSL that the primary lending agent has received prior approval of, or

has the authority to make the decision to hire GSL.

The Primary Lending Agreement also will set forth the basis and the

method for the primary lending agent's compensation from the Client

Plan for the performance of securities lending services and will

authorize the primary lending agent to pay a portion of its fee, as the

primary lending agent determines in its sole discretion, to any sub-

agent(s) it retains pursuant to the authority granted under such

agreement. Each Primary Lending Agreement will be subject to a

termination provision similar to that contained in the Agency Agreement

if the primary lending agent is relying on PTE 81-6.

Pursuant to its authority to appoint sub-agents, the primary

lending agent will enter into a securities lending sub-agency agreement

(i.e., the Sub-Agency Agreement) with GSL under which the primary

lending agent will retain and authorize GSL, as sub-agent, to lend

securities of the primary lending agent's Client Plans, in a manner

consistent with the terms and conditions as specified in the Primary

Lending Agreement. The Primary Lending Agreement and the Sub-Agency

Agreement will not necessarily have identical terms because the

procedures that CMB uses in operating its lending program will be

spelled out in its form agreement and these may not be identical to how

the primary lending agent operates its own program. For example, CMB

may require that its Sub-Agency Agreement contain certain specific

provisions which the primary lending agent may not have requested from

the Client Plan. One such requirement is that the collateral initially

equal 102 percent of the value of the loaned securities, whereas the

primary lending agent may have been authorized to make loans of

securities at less than 102 percent collateral. CMB may also require

recordkeeping in addition to that specified in the Primary Lending

Agreement and may require different notice provisions.

Each Sub-Agency Agreement will contain provisions which are in

substance comparable to those described above, which would appear in an

Agency Agreement in situations where GSL is the primary lending agent.

In this regard, GSL will make the same representation in the Sub-Agency

Agreement, as described above, with respect to arm's length dealings

with Global Capital Markets. The Sub-Agency Agreement will also set

forth the basis and rate for GSL's compensation to be paid by the

primary lending agent.

12. GSL, on behalf of the Client Plans, will enter into a Loan

Agreement with each applicable entity within Global Capital Markets

that is in substantially similar form to the one used from time to time

with all other borrowers. The Loan Agreement will not be identical to

that used with an unrelated party, in part, because special disclosures

must be made to the Client Plans regarding the relationship between GSL

and certain parts of Global Capital Markets and GIS. However, the

economic terms and procedures required by the Loan Agreement will be

identical to those negotiated with unrelated borrowers.

The form of the Loan Agreement also will be the industry or the

market standard for loans to the borrowers in the country where the

borrower is domiciled. It will describe the lender's rights against the

borrower in the country of the borrower's domicile and represent that

these rights will be equivalent under U.S. law.19 The

independent fiduciary for each Client Plan will approve the terms of

the Loan Agreement through its authorization of the lending program and

such fiduciary will be provided a copy of the applicable Loan Agreement

from GSL upon request.

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

\19\ For example, the form of Loan Agreement between GSL and a

Foreign Affiliated Borrower differs from the standard U.S. loan

agreement. Under the Global Capital Markets/U.K. Loan Agreement, the

Client Plan receives title to (rather than a pledge of or a security

interest in) the collateral.

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

The Loan Agreement will specify, among other things, the right of

GSL, as lending agent on behalf of the Client Plan, to terminate a loan

at any time on not more than five business days' notice and the lending

agent's rights in the event of any default by the borrower. In

addition, the Loan Agreement will contain a requirement that Global

Capital Markets must pay all transfer fees and transfer taxes related

to loans of securities. Further, the Loan Agreement will describe the

basis for compensation to the Client Plan for lending securities to

Global Capital Markets under each category of collateral.

Before entering into the Loan Agreement, Global Capital Markets

will furnish GSL the most recently available audited and unaudited

statements of the financial condition of the applicable borrower within

Global Capital Markets. In turn, such statements will be provided by

GSL to the Client Plan before such plan is asked to approve the terms

of the Loan Agreement. The Loan Agreement will contain a requirement

that Global Capital Markets must provide to the Client Plan prompt

notice, at the time of a loan by such Client Plan, of any material

adverse changes in the borrower's financial condition since the date of

the most recently furnished financial statements.20 If any

such changes have

[[Page 34289]]

taken place, GSL will not make any further loans to Global Capital

Markets unless an independent fiduciary of that Client Plan has

approved the loan in view of the changed financial condition.

Conversely, if the borrower within Global Capital Markets fails to

provide notice of such a change in its financial condition, such

failure will trigger an event of default under the Loan Agreement.

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

\20\ Like broker-dealers registered with the SEC, the broker-

dealer entities within Global Capital Markets/U.K., Global Capital

Markets/Japan and Global Capital Markets/Australia will be subject

to capital adequacy provisions of their respective regulatory

entities. It is represented that such rules require the Foreign

Affiliated Borrowers to maintain, at all times, financial resources

in excess of its financial resources requirement (the Financial

Resources Requirement). For this purpose, financial resources

include equity capital, approved subordinated debt and retained

earnings, less deductions for illiquid assets. The Financial

Resources Requirement includes capital requirements for market risk,

credit risk, foreign exchange risk and large exposures. The rules of

each applicable Foreign Broker-Dealer Regulatory Entity, require

that if a firm's financial resources fall below a certain percentage

(e.g., 120 percent with respect to the Securities and Futures

Authority and 140 percent with respect to the Ministry of Finance

and the Tokyo Stock Exchange) of its Financial Resources

Requirement, the Foreign Broker-Dealer Regulatory Entity must be

notified so that it can examine the terms of the firm's financial

position and require an infusion of more capital, if needed. In

addition, a breach of the requirement to maintain financial

resources in excess of the Financial Resources Requirement may lead

to sanctions by the applicable Foreign Broker-Dealer Regulatory

Entity. If the breach is not promptly resolved, such Foreign Broker-

Dealer Regulatory Entity may restrict the firm's activities.

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

13. As noted above, the agreement by GSL to provide securities

lending services, as agent, to a Client Plan will be embodied in the

Agency Agreement. The Client Plan and GSL will, prior to the

commencement of any lending activity, agree to the arrangement, as

described above, under which GSL will be compensated for its services

as lending agent. The agreed-upon fee arrangement will be set forth in

the Agency Agreement and thereby will be subject to the prior written

approval of a fiduciary of the Client Plan which is independent of

Global Capital Markets and GSL.

Similarly, with respect to arrangements under which GSL is acting

as securities lending sub-agent, the agreed upon fee arrangement of the

primary lending agent will be set forth in the Primary Lending

Agreement, and such agreement will specifically authorize the primary

lending agent to pay a portion of such fee, as the primary lending

agent determines in its sole discretion, to any sub-agent, including

GSL, which is to provide securities lending services to the Client

Plans.21 A Client Plan will be provided with any reasonably

available information which is necessary for the Client Plan's

independent fiduciary to make a determination whether to enter into or

continue to participate under the Agency Agreement (or the Primary

Lending Agreement) and any other reasonably available information which

such fiduciary may reasonably request.

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

\21\ The foregoing provisions describe arrangements comparable

to conditions (c) and (d) of PTE 82-63 which require that the

payment of compensation to a ``lending fiduciary'' is made under a

written instrument and is subject to prior written authorization of

an independent ``authorizing fiduciary.'' In the event that a

commingled investment fund will participate in the securities

lending program, the special rule applicable to such funds

concerning the authorization of the compensation arrangement set

forth in condition (f) of PTE 82-63 will be satisfied.

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

14. Each time a Client Plan lends securities to Global Capital

Markets pursuant to the Loan Agreement, GSL will reflect in its

records, the material terms of the loan, including the securities to be

loaned, the required level of collateral and the fee receivable or

rebate payable. When a loan is collateralized with cash, the cash will

be invested for the benefit of and at the risk of the Client Plan, and

resulting earnings (net of a rebate to the borrower and the fee to the

lending agent) comprise the compensation to the Client Plan with

respect to such loan. Where collateral consists of obligations other

than cash, the borrower will pay a fee (loan premium) directly to the

lending Client Plan, which fee will be shared with GSL as agreed under

the Agency Agreement. The terms of each loan will be at least as

favorable to the Client Plan as those of a comparable arm's length

transaction between unrelated parties.

15. The Client Plan will receive the equivalent of all

distributions made to holders of the borrowed securities during the

term of any 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 or other distributions. The

Loan Agreement will provide that the Client Plan may terminate any loan

at any time. Upon a termination, Global Capital Markets will be

contractually obligated to return the loaned securities to the Client

Plan within five business days of notification (or such longer period

of time permitted under PTE 81-6, as amended or superseded). If Global

Capital Markets fails to return the securities within the designated

time, the Client Plan will have the right under the Loan Agreement to

purchase securities identical to the borrowed securities and apply the

collateral to payment of the purchase price and any other expenses of

the Client Plan associated with the sale and/or purchase.

16. The Client Plan will receive collateral from Global Capital

Markets (by physical delivery, book entry in a U.S. securities

depository, wire transfer or similar means) by the close of business on

or before the day the loaned securities are delivered to Global Capital

Markets. The collateral will consist of cash, securities issued or

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

bank letters of credit (issued by a person other than CMB or its

affiliates) or any combination thereof, of such other types of

collateral which might be permitted by the Department under PTE 81-6,

as amended or superseded, relating to securities lending activities.

The market value of the collateral on the close of business on the day

preceding the day of the loan will be at least 102 percent of the

market value of the loaned securities. The Loan Agreement will give the

Client Plan a continuing security interest in, title to, or the rights

of a secured creditor with respect to the collateral and a lien on the

collateral. GSL will monitor the level of the collateral daily. If the

market value of the collateral falls below 100 percent (or such greater

percentage as agreed to by the parties) of that of the loaned

securities, GSL will require Global Capital Markets to deliver by the

close of business the next day sufficient additional collateral to

bring the level back to at least 102 percent.

17. As securities lending agent for the Client Plans, GSL also

provides ancillary services such as investing the cash collateral

received with respect to such securities loans. Such investment

management services can be provided on a separate account basis or

through CMB's commingled funds. For these services, GSL is paid an

investment management fee by the Client Plans, either through a direct

charge to the Client Plan for individually-managed accounts and some

commingled funds, or, in the case of other commingled funds, through an

investment management fee charged against the commingled fund's assets.

Retaining GSL to provide such investment management services is

optional and within the total discretion of the Client Plan.

Alternatively, the independent fiduciary of the Client Plan may select

its own manager, an unrelated mutual or collective fund, or another

vehicle of his choice. The selected investment vehicle must be

acceptable to GSL. GSL neither selects the collateral investment

vehicle nor has any authority or responsibility to do so. To further

protect the Client Plans' assets in these transactions, GSL's

procedures for lending securities will comply with the applicable

conditions of PTE 81-6 and PTE 82-63 (including with respect to any

commingled funds that may participate in the securities lending

program).

18. GSL will establish each day separate written schedules of

lending fees and rebate rates to assure uniformity of treatment among

borrowing brokers and to limit the discretion that GSL would have in

negotiating securities loans to Global Capital Markets. Comparable

loans to all borrowers of a given security on that day will be made at

rates or lending fees

[[Page 34290]]

on the relevant daily schedules or at rates or lending fees which may

be more advantageous to the Client Plans. In no case will loans be made

to Global Capital Markets at rates or lending fees that are less

advantageous to the Client Plans than those on the schedule. The daily

schedule of rebate rates will be based on the current value of the

clients' reinvestment vehicles and on market conditions, as reflected

by demand for securities by borrowers other than Global Capital

Markets. As with rebate rates, the daily schedule of lending fees will

also be based on market conditions, as reflected by demand for

securities by borrowers other than Global Capital Markets, and will

generally track the rebate rates with respect to the same security or

class of security.

GSL will adopt maximum daily rebate rates for cash collateral

payable to Global Capital Markets on behalf of a lending Client Plan.

Separate maximum daily rebate rates will be established with respect to

securities loans of designated securities classes of securities such as

U.S. Government securities, U.S. equities and corporate bonds,

international fixed income securities and international equities. With

respect to each designated class of securities, the maximum rebate rate

will be the lower of (a) a rate based upon an agreed-upon interest rate

index (such as one month LIBOR for Fed funds) and (b) the client's

initial or expected reinvestment rate for the relevant cash collateral,

minus a stated percentage of such reinvestment rate, as pre-approved by

the independent fiduciary of the Client Plan. Thus, when cash is used

as collateral, at least initially, the daily rebate rate will always be

lower than the rate of return to the Client Plans from authorized

investments for cash collateral by such stated percentage as shall be

pre-approved by the independent fiduciary. GSL will submit the formula

for determining the maximum daily rebate rate to an independent

fiduciary of the Client Plan for approval before lending any securities

to Global Capital Markets on behalf of such plan.

GSL will also adopt minimum daily lending fees for non-cash

collateral payable by Global Capital Markets to GSL on behalf of the

Client Plan and GSL. Separate minimum daily gross lending fees will be

established with respect to loans of designated classes of securities

such as U.S. Government securities, U.S. equities and corporate bonds,

international fixed income securities and international equities. With

respect to each designated class of securities, the minimum lending fee

will be stated as a percentage of the principal value of the loaned

securities. GSL will submit such gross minimum daily lending fees to an

independent fiduciary of a Client Plan for approval before initially

lending any securities to Global Capital Markets on behalf of such

Client Plan.

19. For collateral other than cash, the lending fees charged the

previous day will be reviewed by GSL for competitiveness. Based on the

demand of the marketplace, this daily fee historically has remained

relatively constant although it may be subject to fluctuation due to

market conditions. 22 Because during any successive two week

period, on average, at least 50 percent or more of securities loans

negotiated on behalf of Client Plans, in the aggregate, will be to

unrelated brokers or dealers, the competitiveness of GSL's fee schedule

will be continuously tested in the marketplace. 23

Accordingly, loans to Global Capital Markets should result in

competitive rate income to the lending Client Plan.

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

\22\ With respect to domestic securities and international debt

securities the daily lending fee is currently at least \1/20\th of

one percent of the principal value of the loaned securities. With

respect to international equity securities, the daily fee is

currently \1/5\th of one percent of the principal value of the

loaned securities.

\23\ This 50 percent requirement will apply regardless of the

type of collateral used to secure the loan.

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

20. The method of determining the daily securities lending rates

(fees and rebates), the minimum lending fees payable by Global Capital

Markets and the maximum rebate payable to Global Capital Markets will

be specified in an exhibit attached to the Agency Agreement to be

executed between the independent fiduciary of the Client Plan and GSL

in cases where GSL is the direct securities lending agent.

21. Should GSL recognize prior to the end of a business day that,

with respect to new and/or existing loans, it must change the rebate

rate or lending fee formula in the best interest of the Client Plans,

it may do so with respect to Global Capital Markets. 24 If

GSL changes the lending fee formula or the rebate rate formula on any

outstanding loan to Global Capital Markets (except for any change

resulting from a change in the value of any third party independent

index with respect to which the fee or rebate is calculated, or if the

formula will always be beneficial to the Client Plan), GSL, by the

close of business on the date of such adjustment, will provide the

independent fiduciary of the Client Plan with notice that it has

changed such fee formula or rebate rate formula with respect to such

loan and that the Client Plan may terminate such loan at any time.

Allowing GSL to request a modification to the lending fee or the rebate

rate formula with respect to an existing loan to Global Capital Markets

when market conditions change will be beneficial to the Client Plans.

In the absence of the ability to make such modification, Global Capital

Markets may be forced by market conditions to terminate the loan and

seek better terms elsewhere. Such termination may then force the Client

Plan to seek new borrowers for its securities who, in light of the

changed market conditions, are likely to negotiate for the lending fee

or rebate rate which Global Capital Markets would have received or paid

had GSL had the written authority from the independent fiduciary of the

Client Plan to decrease the lending fee or increase the rebate rate.

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

\24\ GSL will not initiate any modification in such rates or

fees which would be detrimental to Client Plans.

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

22. Although GSL will normally lend securities to requesting

borrowers and include for these purposes Global Capital Markets on a

``first come, first served'' basis as a means of assuring uniformity of

treatment among borrowers, the applicants recognize that, in some

cases, it may not be possible to adhere to a ``first come, first

served'' allocation. This can occur, for instance where (a) the credit

limit established for such borrower by GSL and/or the Client Plan has

already been satisfied; (b) the ``first in line'' borrower is not

approved as a borrower by the particular Client Plan whose securities

are sought to be borrowed; and (c) the ``first in line'' borrower

cannot be ascertained, as an operational matter, because several

borrowers spoke to different GSL representatives at or about the same

time with respect to the same security. In situations (a) and (b),

loans would normally be effected with the ``second in line.'' In

situation (c), securities would be allocated equitably among all

eligible borrowers.

23. The Client Plans will be indemnified by CMB or CSI in the event

Global Capital Markets fails to return borrowed securities. In the

event a Foreign Affiliated Borrower within Global Capital Markets

defaults on a loan, CMB will liquidate the loan collateral to purchase

identical securities for the Client Plan. In the event the collateral

is insufficient to accomplish such purchase, CMB will indemnify the

Client Plan for any shortfall in the collateral plus interest on such

amount and any transaction costs incurred (including attorney's fees of

the Client Plan for legal actions arising out of the default on the

loans or failure to indemnify properly under this

[[Page 34291]]

provision). Alternatively, if such identical securities are not

available on the market, CMB will pay the Client Plan cash equal to the

market value of the borrowed securities as of the date they would have

been returned to the Client Plan plus all the accrued financial

benefits derived from the beneficial ownership of such loaned

securities. The lending Client Plans will be indemnified by CMB in the

United States for any loans to the Foreign Affiliated Borrower.

When the U.S. Affiliated Borrower is CSI, a U.S. registered broker-

dealer, either CMB or CSI will indemnify the Client Plan against

losses. CMB will liquidate the loan collateral to purchase identical

securities for the Client Plan. If the collateral is insufficient to

accomplish such purchase, either CMB or CSI will indemnify the Client

Plan for any shortfall in the collateral plus interest on such amount

and any transaction costs incurred (including attorney's fees of the

Client Plan for legal actions arising out of the default on the loans

or failure to indemnify properly under this provision.)

24. Each Client Plan participating in the lending program will be

sent a monthly transaction report which will provide a list of all

security loans outstanding and closed for a specified period. The

report will identify for each open loan position, the securities

involved, the value of the security for collateralization purposes, the

current value of the collateral, the rebate or loan premium (as the

case may be) at which the security is loaned, and the number of days

the security has been on loan. In order to provide the means for

monitoring lending activity, rates on loans to Global Capital Markets

compared with loans to other brokers and the level of collateral on the

loans, the monthly report will show, on a daily basis, the market value

of all outstanding securities loans to Global Capital Markets and to

other borrowers as compared to the total collateral held for both

categories of loans. In addition, the monthly report will state the

daily fees where collateral other than cash is utilized and will

specify the details used to establish the daily rebate payable to all

brokers where cash is used as collateral. Further, the monthly report

will state, on a daily basis, the rates at which securities are loaned

to Global Capital Markets as compared with those at which securities

are loaned to other brokers. This statement will give the Client Plan's

independent fiduciary information which can be compared to that

contained in the daily rebate schedule.

25. In all cases, GSL will maintain records sufficient to assure

compliance with its representation that all loans to Global Capital

Markets are effectively at arm's length terms. These records will be

provided to the appropriate independent fiduciary of a Client Plan in

the manner and format agreed to with such fiduciary and without charge

to that Client Plan. With respect to the proposed transactions, GSL

will make and retain for six months, tape recordings evidencing all

securities loan transactions with Global Capital Markets. Also, if

requested by the lending customer, GSL will provide daily confirmations

of securities lending transactions. Further, if requested by the

customer, GSL will provide weekly or daily reports setting forth for

each transaction made or outstanding during the relevant reporting

period the following information: The loaned securities, the related

collateral, the rebates and loan premiums and such other information in

such format as is agreed to by the parties. Finally, prior to a Client

Plan's approval of a securities lending program, GSL will provide a

Client Plan fiduciary with a copy of the proposed exemption and the

notice granting the exemption.

26. Only Client Plans with total assets having an aggregate market

value of at least $50 million are permitted to lend securities to

Global Capital Markets. In the case of two or more Client Plans which

are maintained by the same employer, controlled group of corporations

or employee organization (i.e., the Related Client Plans), whose assets

are commingled for investment purposes in a single master trust or any

other entity the assets of which are ``plan assets'' under the Plan

Asset Regulation), which entity is engaged in securities lending

arrangements with Global Capital Markets, the foregoing $50 million

requirement will be satisfied if such trust or other entity has

aggregate assets which are in excess of $50 million. However, if the

fiduciary responsible for making the investment decision on behalf of

such master trust or other entity is not the employer or an affiliate

of the employer, such fiduciary must have total assets under its

management and control, exclusive of the $50 million threshold amount

attributable to plan investment in the commingled entity, which are in

excess of $100 million.

In the case of two or more Client Plans which are not maintained by

the same employer, controlled group of corporations or employee

organization (i.e., the Unrelated Client Plans), whose assets are

commingled for investment purposes in a group trust or any other form

of entity the assets of which are ``plan assets'' under the Plan Asset

Regulation, which entity is engaged in securities lending arrangements

with Global Capital Markets, the foregoing $50 million requirement will

be satisfied if such trust or other entity has aggregate assets which

are in excess of $50 million (excluding the assets of any Client Plan

with respect to which the fiduciary responsible for making the

investment decision on behalf of such group trust or other entity or

any member of the controlled group of corporations including such

fiduciary is the employer maintaining such Client Plan or an employee

organization whose members are covered by such Client Plan). However,

the fiduciary responsible for making the investment decision on behalf

of such group trust or other entity (a) must have full investment

responsibility with respect to plan assets invested therein

25; and (b) must have total assets under its management and

control, exclusive of the $50 million threshold amount attributable to

plan investment in the commingled entity, which are in excess of $100

million.

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

\25\ For purposes of this proposed exemption, the term ``full

investment responsibility'' means that the fudiciary responsible for

making investment decisions on behalf of the group trust or other

form of entity, has and exercises discretionary management authority

over all of the assets of the group trust or other plan assets

entity.

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

In addition, none of the entities described above must be formed

for the sole purpose of making loans of securities.

27. With respect to loans involving the Foreign Affiliated

Borrowers within Global Capital Markets, the following additional

safeguards will be applicable: (a) All collateral will be maintained in

U.S. dollars, U.S. dollar-denominated securities or letters of credit

of U.S. banks; (b) all collateral will be held in the United States;

26 (c) the situs of the Loan Agreement will be maintained in

the United States; and (d) CMB will indemnify the lending Client Plan

in the United States for any loans to a Foreign Affiliated Borrower so

that the Client Plan will not have to litigate in a foreign

jurisdiction nor sue the Foreign Affiliated Borrower to realize on the

indemnification; (e) prior to the transaction, the Foreign Affiliated

Borrower will enter into a written agreement with GSL on behalf of the

Client Plan whereby the Foreign Affiliated Borrower consents to the

[[Page 34292]]

jurisdiction of the courts of the United States with respect to the

transactions described herein; and (f) each Foreign Affiliated Borrower

will be (1)(i) a deposit taking or merchant banking institution

supervised by the banking authorities of the jurisdiction in which it

is located; or (ii) a broker-dealer supervised by a regulatory

authority in the country in which it is located; and (2) in compliance

with all applicable provisions of Rule 15a-6 under the 1934 Act.

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

\26\ Under United Kingdom law, the securities lending agreement

between GSL and CMIL provides, among other things, that all title

and interest in the loaned securities passes to the borrower and all

rights, title and interest in the collateral passes to the lending

Client Plan.

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

28. In summary, it is represented that the proposed transactions

will satisfy the statutory criteria for an exemption under section

408(a) of the Act because:

(a) The form of the Loan Agreement pursuant to which any securities

loan is effected will be approved by a fiduciary of the Client Plan

which is independent of GSL before a Client Plan lends any securities

to Global Capital Markets.

(b) The lending arrangements (1) will permit the Client Plans to

lend to Global Capital Markets and (2) will enable the Client Plans to

diversify the list of eligible borrowers and earn additional income

from the loaned securities on a secured basis, while continuing to

receive any dividends, interest payments and other distributions due on

those securities.

(c) The Client Plans will receive sufficient information concerning

the financial condition of the borrowers within Global Capital Markets

before the Client Plan lends any securities to any of those entities.

(d) The collateral on each loan to Global Capital Markets initially

will be at least 102 percent of the market value of the loaned

securities, which is in excess of the 100 percent collateral required

under PTE 81-6, and will be monitored daily by GSL.

(e) The Client Plans will receive a monthly report which provides

an independent fiduciary of the Client Plans with information on loan

activity, fees, loan return/yield and the rates on loans to Global

Capital Markets as compared with loans to other brokers and the level

of collateral on the loans.

(f) Neither GSL, GIS, Global Capital Markets nor any other division

or affiliate of CMC will have discretionary authority or control over a

Client Plan's assets, including the acquisition or disposition of

securities available for loan.

(g) The terms of each loan will be at least as favorable to a

Client Plan as those of a comparable arm's length transaction with an

unrelated party.

(h) The fee payable by Global Capital Markets to the Client Plan

for the use of the securities (or the loan rebate fee payable by the

Client Plan to Global Capital Markets if the loan is collateralized

with cash) will be set forth in the applicable report provided to the

independent fiduciary of the Client Plan.

(i) The Client Plan will be able to terminate the lending

arrangement without penalty within five business days after providing

written notice of termination to GSL.

(j) All of the procedures under the transactions will conform to

the applicable provisions of PTE 81-6 and PTE 82-63 and also will be in

compliance with the applicable banking or securities laws of the United

States, the United Kingdom, Canada, Australia and Japan.

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

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

Henry H. Borland III and Pat Borland; Located in Downers Grove, IL

[Exemption Application No. D-10707]

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 32826, 32847, August 10, 1990). If the exemption

is granted, the sanctions resulting from the application of section

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

Code, shall not apply to the proposed sale (the Sale) of certain

improved real property (the Property) by the H.H. Borland, Inc. Profit

Sharing Plan (the Plan) to the trustees of the Plan, Henry H. Borland

III (Mr. Borland) and Pat Borland (collectively, the Trustees),

disqualified persons with respect to the Plan, 27 provided

that the following conditions are met:

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

\27\ Since Mr. Borland is the sole owner of the Plan sponsor and

the only participant in the Plan, there is no jurisdiction under

Title I of the Act pursuant to 29 CFR Sec. 2510.3(b). However, there

is jurisdiction under Title II of the Act pursuant to section 4975

of the Code.

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

(a) The terms and conditions of the Sale are at least as favorable

to the Plan as those obtainable in an arm's length transaction with an

unrelated party;

(b) The Trustees will purchase the Property from the Plan for the

greater of $200,000 or the fair market value of the Property as of the

date of the transaction as determined by a qualified, independent

appraiser;

(c) The Sale will be a one-time transaction for cash; and

(d) The Plan will pay no fees or commissions in connection with the

Sale.

Summary of Facts and Representations

1. H.H. Borland, Inc. (H.H. Borland) is an Illinois corporation

engaged in the purchase and sale of real estate. H.H. Borland is the

sponsor of the Plan which is a defined contribution profit sharing plan

located in Downers Grove, Illinois. The Plan had one participant, Mr.

Borland, and approximately $1,100,000 in total assets as of November

21, 1998. The trustees of the Plan are Mr. Borland and Pat Borland

(collectively, the Trustees). Among the Plan's assets is the Property

which is a single family residence located at 1213 Red Silver Court,

Downers Grove, Illinois. The Property was acquired by the Plan from the

estate of Wilma L. Winterfield, a party unrelated to the Plan, for

$160,875 on January 30, 1991.

2. The applicants represent that, since its acquisition, the

Property has generated rental income (the Rental Income) for the Plan.

In this regard, the applicants represent that the Plan rented the

Property to unrelated third parties from January 30, 1991 until

November 30, 1998 and received rental income (the Rental Income)

totaling $132,404.25. The applicants represent that from November 30,

1998 to present, the Plan has not rented the Property and the Property

has not generated any income for the Plan. The applicants additionally

represent that at no time have the Trustees occupied or otherwise

benefitted from the Plan's ownership of the Property.

3. The applicants represent that the Plan has incurred certain

expenses (the Expenses) as a result of the Plan's ownership of the

Property. In this regard, the applicants represent that the Plan has

incurred a total of $47,648.72 in real estate taxes and insurance costs

associated with the Plan's ownership of the Property. The applicants

represent that, after deducting the Expenses from the Rental Income,

the Plan has received an annual yield of 6.6% relative to the

Property's acquisition price due to the Plan's ownership of the

Property.

3. The Property was appraised on January 25, 1999 by David M.

Benacke (Mr. Benacke) for Appraisal Resources, Ltd., an appraisal

company independent of the Plan and the Trustees. Mr. Benacke, an

Illinois certified real estate appraiser, used the sales comparison

approach to evaluate the fair market value of the Property. Mr. Benacke

represents that he compared the Property to three similar properties

which were the subject of recent sales. Based on these comparisons, Mr.

[[Page 34293]]

Benacke represents that the fair market value of the Property was

$200,000, as of January 25, 1999.

4. The applicants propose a sale of the Property (i.e., the Sale)

by the Plan to the Trustees for $200,000, the Property's current fair

market value. The applicants represent that the Sale is

administratively feasible in that it will be a one-time transaction for

cash in which the Plan will pay no fees or commissions. The applicants

also represent that the Sale is in the best interest of the Plan since

the Property is currently vacant and any future rental of the Property

to unrelated parties will require substantial Plan expenditures for

renovations. In addition, the applicants represent that the Sale is

protective of the Plan since the Plan will receive cash for the

Property which the Plan can invest in assets appropriate for the Plan's

sole participant.

5. In summary, the applicant represent that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because:

(a) The terms and conditions of the Sale are at least as favorable

to the Plan as those obtainable in an arm's length transaction with an

unrelated party;

(b) The Trustees will purchase the Property from the Plan for the

greater of $200,000 or the fair market value of the Property as of the

date of the transaction as determined by a qualified, independent

appraiser;

(c) The Sale will be a one-time transaction for cash; and

(d) The Plan will pay no fees or commissions in connection with the

Sale.

For Further Information Contact: Christopher J. Motta of the

Department, telephone (202) 219-8883 (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 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 22nd day of June 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 99-16215 Filed 6-24-99; 8:45 am]

BILLING CODE 4510-29-P