Proposed Exemptions; Bankers Trust Company (BTC)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10688, et al.]

Proposed Exemptions; Bankers Trust Company (BTC)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the

[[Page 51794]]

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

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, 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, N.W., Washington, D.C.

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, N.W.,

Washington, D.C. 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.

Bankers Trust Company (BTC), Located in New York, New York

[Application Nos. D-10688 through D-10691]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

is granted, the restrictions of section 406(a) of the Act and the

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

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

apply to the proposed execution by certain employee benefit plans (the

Plans) investing in Transwestern Office Partners II, L.P. (the LP) of a

partner agreement and estoppel (the Estoppel) under which the Plans

agree to honor capital calls made to the Plans by BTC as the

representative of certain lenders (the Lenders) that will fund a so-

called ``credit facility'' providing credit to the LP in connection

with the Plans'' capital commitments to the LP where the LP has granted

to BTC security interests in the capital commitments, and where the

Lenders are parties in interest with respect to the Plans; provided

that (a) the proposed grants and agreements are on terms no less

favorable to the Plans than those which the Plans could obtain in

arm's-length transactions with unrelated parties; (b) the decisions on

behalf of each Plan to invest in the LP and to execute such grants and

agreements in favor of BTC are made by a fiduciary which is not

included among, and is independent of and unaffiliated with, the

Lenders and BTC; (c) with respect to Plans that have invested or may

invest in the LP in the future, such Plans have or will have assets of

not less than $100 million and not more than 5% of the assets of any

such Plan are or will be invested in the LP. For purposes of this

condition (c), in the case of multiple plans maintained by a single

employer or single controlled group of employers, the assets of which

are invested on a commingled basis, (e.g., through a master trust),

this $100 million threshold will be applied to the aggregate assets of

all such plans; and d) the general partner of the LP must be

independent of BTC, the Lenders and the Plans.

Summary of Facts and Representations

1. The LP is a Delaware limited partnership, the sole general

partner of which is Transwestern Office GP II, L.L.C. (the General

Partner), a Delaware limited liability company. The General Partner is

a separate affiliate of Transwestern Investment Company, L.L.C. (TWIC),

a Delaware limited liability company. The General Partner is an entity

unrelated to BTC, the Lenders and the Plans. The LP shall exist for

five years from the end of its acquisition period (which is expected to

last up to 30 months), but may be extended for an additional three

years. The LP was formed by the General Partner (as sole General

Partner), with the intent of seeking capital commitments from a limited

number of prospective investors who would become limited partners (the

Partners) of the LP. There are 17 current and prospective Partners

having, in the aggregate, irrevocable, unconditional capital

commitments of at least $150,000,000.

2. The LP has been organized to establish an integrated, self-

administered and self-managed real estate operating company (see

paragraph 11, below) to acquire real property assets primarily used for

office purposes. The LP will make acquisitions and provide leasing and

property management services. As described in the Private Placement

Memorandum, the LP believes that significant opportunities exist to

achieve superior risk-adjusted returns on its investments in excess of

15% over a five-year period. The LP will identify and commit to all

investments within thirty months of closing (the Acquisition Period).

Strategies to maximize proceeds and create liquidity for the LP include

single asset sales, portfolio transactions, formation and exchange of

assets for equity and a public market offering.

3. The LP will distribute to the Partners any revenue that exceeds

current and anticipated cash needs as determined by the General

Partner. Proceeds from the sale or financing of properties will

generally be distributed in this manner. However, invested capital

returned from investments sold or financed by the LP within 30 months

[[Page 51795]]

of the final closing date will be subject to reinvestment, provided

that such amounts do not exceed a Partner's capital commitment (as

discussed below).

4. The agreement dated May 1, 1997, under which the LP is organized

(the Agreement) requires each Partner to execute a subscription

agreement that obligates the Partner to make contributions of capital

up to a specified maximum. The Agreement requires Partners to make

capital contributions to fulfill this obligation upon receipt of notice

from the General Partner. Under the Agreement, the General Partner may

make calls for cash contributions (Capital Calls) up to the total

amount of a Partner's capital commitment upon 10 business days' notice,

subject to certain limitations. The Partners' capital commitments are

structured as unconditional, binding commitments to contribute capital

when Capital Calls are made by the General Partner. In the event of a

default by a Partner, the LP may exercise any of a number of specific

remedies.

The Partners constituting over 90% of the equity interests and

their investments in the LP are:

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Capital

Name of partner commitment

(millions)

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The General Partner...................................... $7.175

The Northwestern Mutual Life Ins. Co..................... 10

ERI Trans Inc............................................ 15

Allstate Insurance Company............................... 30

State Street Bank and Trust as Master Trustee of the 20

Northrop Employees Benefit Plans Master Trust...........

Mayo Foundation.......................................... 5

Mayo Foundation Pension Fund............................. 5

Greenwood Properties, Inc................................ 7.5

New York Life Insurance Company.......................... 15

Pew Memorial Trusts...................................... 10.5

J.H. Pew Freedom Trust................................... 2.1

J.N. Pew, Jr. Trust...................................... 1.05

Mabel Pew Myrin Trust.................................... 1.35

Northwestern Memorial Hospital........................... 1.5

Northwestern Memorial Hospital Employees' Pension Plan 1.5

Trust...................................................

Fruit of the Loom Pension Trust, for the Benefit of Union 3

Underwear Pension Plan..................................

Northwestern University.................................. 15

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5. The applicant states that the LP will incur indebtedness in

connection with many of its investments. In addition to mortgage

indebtedness, the LP will incur short-term indebtedness for the

acquisition of particular investments. The indebtedness for the LP will

be no more than 75% of the acquisition cost of the investments and no

more than 70%, on a portfolio basis, of the aggregate book value of all

properties of the LP. This indebtedness will be non-recourse except in

connection with a Credit Facility, described in representation 6,

below, secured by, among other things, a pledge and assignment of each

Partner's capital commitment. This type of facility will allow the LP

to consummate investments quickly without having to finalize the debt/

equity structure for an investment or having to arrange for interim or

permanent financing prior to making an investment, and will have

additional advantages to the Partners and the LP. Under the Agreement,

the General Partner may encumber Partners' capital commitments,

including the right to call for capital contributions, to one or more

financial institutions as security for the Credit Facility. Each of the

Partners has appointed the General Partner as its attorney-in-fact to

execute all documents and instruments of transfer necessary to

implement the provisions of the Agreement. In connection with this

Credit Facility, each of the Partners is required to execute documents

customarily required in secured financings, including an agreement to

honor Capital Calls unconditionally.

6. BTC will become agent for a group of Lenders providing a

37 revolving Credit Facility to the LP. BTC will also be a

participating Lender. Some of the Lenders may be parties in interest

with respect to some of the Plans that invest in the LP by virtue of

such Lenders' (or their affiliates') provisions of fiduciary or other

services to such Plans with respect to assets other than the Plans'

interests in the LP. BTC is requesting an exemption to permit the Plans

to enter into security agreements with BTC, as the representative of

the Lenders, whereby such Plans' capital commitments to the LP will be

used as collateral for loans made under the Credit Facility to the LP,

when such loans are funded by Lenders who are parties in interest to

one or more of the Plans. However, BTC represents that neither it nor

any Lender will act in any fiduciary capacity for the decision made by

any of the Plans to invest in the LP (as discussed in Paragraph 13,

below).

The Credit Facility will be used to provide immediate funds for

real estate acquisitions made by the LP, as well as for the payment of

LP expenses. Repayments will be secured generally by the LP from the

Partners' capital contributions, and Capital Calls on the Partners'

capital commitments. The Credit Facility is intended to be available

until November 1, 1999. The LP can use its credit under the Credit

Facility either by direct or indirect borrowings or by requesting that

letters of credit be issued. All Lenders will participate on a pro rata

basis with respect to all cash loans and letters of credit up to the

maximum of the Lenders' respective commitments. All such loans and

letters of credit will be issued to the LP or an entity in which the LP

owns a direct or indirect interest (a Qualified Borrower), and not to

any individual Partner. All payments of principal and interest made by

the LP or a Qualified Borrower will be allocated pro rata among all

Lenders.

7. The Credit Facility will be a recourse obligation of the LP, the

repayment of which is secured primarily by the grant of a security

interest to BTC, as agent under the Credit Facility for the benefit of

the Lenders, from the LP, in both: (a) The Partners' capital

commitments and (b) a collateral account (the Borrower Collateral

Account) under which the LP must deposit all Partners' capital

contributions when paid. In addition, the LP and the General Partner

will grant BTC, as agent under the Credit Facility for the benefit of

the Lenders, a security interest in: (a) The right to call capital

under the Agreement; (b) Capital Call notices; and (c) the Partners'

capital commitments. The Borrower Collateral Account will be assigned

to BTC to secure repayment of the indebtedness incurred under the

Credit Facility. BTC has the right to apply any or all funds in the

Borrower Collateral Account toward payment of the indebtedness in any

manner it may elect. The capital commitments are fully recourse to all

the Partners and to the General Partner. In the event of default under

the Credit Facility, the agent (i.e., BTC) has the right to make

capital calls unilaterally on the Partners to pay their unfunded

capital commitments, and will apply cash received from such capital

calls to any outstanding debt.

8. Under the Credit Facility, each Partner that is a Plan will

execute an Estoppel pursuant to which it acknowledges that the LP and

the General Partner have pledged and assigned to BTC, for the benefit

of each Lender which may be a party in interest (as defined in Act

section 3(14)) of such Partner, all of their rights under the Agreement

relating to capital commitments and Capital Call notices. The Estoppel

will include an acknowledgment and covenant by the Plan that, if an

event of default exists, such Plan will unconditionally honor

[[Page 51796]]

any capital call made by BTC in accordance with the Agreement up to the

unfunded capital commitment of such Plan to the LP.

9. BTC is requesting an exemption to permit each trust to enter

into an Estoppel under the terms and conditions described herein. The

trusts which hold assets of the Plans (the Trusts) are Partners in the

LP and therefore own limited partnership interests. Some of the Lenders

are parties in interest with respect to some of the Plans in the Trusts

by virtue of such Lenders' (or their affiliates') provisions of

fiduciary (or other) services to such Plans. These services are

provided with respect to Trust assets other than the LP interests.

Thus, BTC states that there is an immediate need for each Trust to

enter into the Estoppel under the terms and conditions described

herein. The Trusts owning limited partnership interests in the LP and

the extent of their respective capital commitments to the LP are

described as follows:

(a) The Northrop Employee Benefit Plans Master Trust (the Northrop

Trust), Located in New York, New York; State Street Bank and Trust as

Master Trustee. This Trust holds the assets of nine defined benefit

plans sponsored by the Northrop Grumman Corporation and two defined

benefit plans sponsored by Northrop Grumman Norden Systems, Inc. (the

Northrop Plans), which own interests in the LP. The total number of

participants in the eleven Northrop Plans is approximately 122,976, and

the approximate fair market value of the total assets of the Northrop

Plans held in the Northrop Trust as of December 31, 1997 was $10.25

billion. The Northrop Trust has made a capital commitment of $20

million to the LP. The fiduciary responsible for reviewing and

authorizing the investment in the LP by the Northrop Trust is

Forstmann-Leff International, Inc. (FLI). FLI was organized in 1968 as

an investment counseling firm. It is a multi-asset class, global

investment management firm. FLI manages approximately $7 billion in

domestic and international equity, fixed income and private markets'

accounts.

(b) The Fruit of the Loom Pension Trust (the Fruit of the Loom

Trust), Located in Chicago, Illinois; The Northern Trust Company,

Trustee. This Trust holds the assets of one defined benefit plan (the

Union Underwear Plan), which owns interests in the LP. The total number

of participants in the Union Underwear Plan is approximately 20,935,

and the approximate fair market value of the total assets of the Union

Underwear Plan held in the Fruit of the Loom Trust as of December 31,

1997 is $161 million. The Fruit of the Loom Trust has made a capital

commitment of $3 million to the LP. The fiduciary responsible for

reviewing and authorizing the investment in the LP by the Fruit of the

Loom Trust is William Farley, Pension Investment Committee of the Fruit

of the Loom, Inc. Board of Directors.

(c) The Mayo Foundation Master Retirement Trust (the Mayo Trust),

Located in New York, New York; BTC, Trustee. This Trust holds the

assets of one defined benefit plan (the Mayo Plan), which owns

interests in the LP. The total number of participants in the Mayo Plan

is approximately 25,028, and the approximate fair market value of the

total assets of the Mayo Plan held in the Mayo Trust as of December 31,

1997 is $1.283 billion. The Mayo Trust has made a capital commitment of

$5 million to the LP. The fiduciary responsible for reviewing and

authorizing the investment in the LP by the Mayo Plan is John H.

Herrell, Vice President of the Mayo Foundation.

(d) The Northwestern Memorial Hospital Employees Pension Plan Trust

(The Memorial Hospital Trust) holds the assets of one defined benefit

plan, the Northwestern Memorial Hospital Employees Pension Plan (the

Memorial Hospital Plan), which owns interests in the LP. The total

number of participants in the Memorial Hospital Plan is approximately

7,804, and the approximate fair market value of the total assets of the

Memorial Hospital Plan held in the Memorial Hospital Trust as of

December 31, 1997 is $213 million. The Memorial Hospital Trust has made

a capital commitment of $1.5 million to the LP. The fiduciary

responsible for reviewing and authorizing the investment in the LP by

the Memorial Hospital Trust is Thomas M. Satkus, Jr., Assistant

Treasurer, Northwestern Memorial Hospital.

10. The applicant represents that the Northrop Plans, the Union

Underwear Plan, the Mayo Plan and the Memorial Hospital Plan are

currently the only employee benefit plans subject to the Act that are

Partners of the LP. However, the applicant states that it is possible

that one or more other Plans will become Partners of the LP in the

future. Thus, the applicant requests relief for any such Plan under

this proposed exemption, provided the Plan meets the standards and

conditions set forth herein. In this regard, such Plan must be

represented by a fiduciary independent of the General Partner, the

Lenders and BTC. Furthermore, the General Partner, who also must be

independent of the Lenders and BTC, must receive from the Plan one of

the following:

(1) A representation letter from the applicable fiduciary with

respect to such Plan substantially identical to the representation

letter submitted by the fiduciaries of the Northrop, Fruit of the Loom,

Mayo and Memorial Hospital Trusts, in which case this proposed

exemption, if granted, will apply to the investments made by such Plan

if the conditions required herein are met; or

(2) Evidence that such Plan and its responsible fiduciaries are

eligible for relief under Prohibited Transaction Exemption 96-23 (PTE

96-23, 61 FR 15975, April 10, 1996), the class exemption for

transactions by a plan with certain parties in interest where such

plan's assets are managed by an in-house asset manager (INHAM) that has

total assets under its management, attributable to plans maintained by

its affiliates, in excess of $50 million (see Part IV(a) of PTE 96-23);

or

(3) Evidence that an insurance company which is investing general

account funds is eligible for relief under Prohibited Transaction

Exemption 95-60 (PTE 95-60, 60 FR 35925, July 12, 1995), the class

exemption for insurance companies; or

(4) Evidence that such Plan is eligible for another class exemption

1 or has obtained an individual exemption from the

Department covering the potential prohibited transactions which are the

subject of this proposed exemption.

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\1\ For example, PTE 84-14 (49 FR 9497, March 13, 1984) permits,

under certain conditions, parties in interest to engage in various

transactions with plans whose assets are managed by a ``qualified

professional asset manager'' (QPAM) who is independent of the

parties in interest (with certain limited exceptions) and meets

specified financial standards.

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11. BTC represents that the LP will obtain an opinion of counsel

that the LP will constitute an ``operating company'' under the

Department's plan asset regulations [see 29 CFR 2510.3-101(c)] if the

LP is operated in accordance with the Agreement and the private

placement memorandum distributed in connection with the private

placement of the LP Partnership interests.2

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\2\ The Department notes that the term ``operating company'' as

used in the Department's plan asset regulation cited above includes

an entity that is considered a ``real estate operating company'' as

described therein (see 29 CFR 2510.3-101(e)). However, the

Department expresses no opinion in this proposed exemption regarding

whether the LP would be considered either an operating company or a

real estate operating company under such regulations. In this

regard, the Department notes that it is providing no relief for

either internal transactions involving the operation of the LP or

for transactions involving third parties other than the specific

relief proposed herein. In addition, the Department encourages

potential Plan investors and their independent fiduciaries to

carefully examine all aspects of the LP's proposed real estate

investment program in order to determine whether the requirements of

the Department's regulations will be met.

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[[Page 51797]]

12. BTC represents that the Estoppel constitutes a form of credit

security which is customary among financing arrangements for real

estate limited partnerships or limited liability companies, wherein the

financing institutions do not obtain security interests in the real

property assets of the partnership or limited liability companies. BTC

also represents that the obligatory execution of the Estoppel by the

Partners for the benefit of the Lenders was fully disclosed in the

Private Placement Memorandum as a requisite condition of investment in

the LP during the private placement of the Partnership interests. BTC

represents that the only direct relationship with respect to the LP

between any of the Partners and any of the Lenders is the execution of

the Estoppel. All other aspects of the transaction, including the

negotiation of all terms of the Credit Facility, are exclusively

between the Lenders and the LP. BTC represents that the proposed

execution of the Estoppel will not affect the abilities of the Trusts

to withdraw from investment and participation in the LP.3

The only Plan assets to be affected by the proposed transactions are

any funds which must be contributed to the LP in accordance with

requirements under the Agreement to make Capital Calls to honor a

Partner's capital commitments.

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\3\ In this regard, the Department cautions Plan fiduciaries to

fully understand all aspects of the Agreement, including the terms

of the Estoppel, prior to making any capital commitments to the LP.

The Department notes that section 404(a) of the Act requires, among

other things, that a fiduciary of a plan act prudently when making

investment decisions for the plan.

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13. BTC represents that neither it nor any Lender acts or has acted

in any fiduciary capacity with respect to any of the Trusts'

investments in the LP and that BTC is independent of and unrelated to

those fiduciaries (the Fiduciaries) responsible for authorizing and

overseeing the Trusts' investments in the LP. Each of the Fiduciaries

represents independently that its authorization of Trust investments in

the LP was free of any influence, authority or control by the Lenders,

including BTC. Each of the Fiduciaries represents that the Trust's

investments in and capital commitments to the LP were made with the

knowledge that each Partner would be required subsequently to grant a

security interest in Capital Calls and capital commitments to the

Lenders and to honor requests for cash contributions, also known as

``drawdowns'', made on behalf of the Lenders without recourse to any

defenses against the General Partner. Each of the Trust Fiduciaries

individually represents that it is independent of and unrelated to BTC

and the Lenders and that the investment by the Trust for which that

Fiduciary is responsible continues to constitute a favorable investment

for the Plan(s) participating in that Trust and that the execution of

the Estoppel is in the best interests and protective of the

participants and beneficiaries of such Plan(s). In the event another

Plan proposes to become a Partner, the applicant represents that it

will require similar representations to be made by such Plan's

independent fiduciary. Any Plan proposing to become a Partner in the

future and needing to avail itself of the exemption proposed herein

will have assets of not less than $100 million 4, and not

more than 5% of the assets of such Plan will be invested in the LP. As

noted in paragraph 9 above, the Northrop Plans, the Union Underwear

Plan, the Mayo Plan and the Memorial Hospital Plan all have total

assets which exceed $100 million and have committed amounts to the LP

which are less than 5% of their total assets.

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\4\ In the case of multiple plans maintained by a single

employer or single controlled group of employers, the assets of

which are invested on a commingled basis, (e.g., through a master

trust), this $100 million threshold will be applied to the aggregate

assets of all such plans.

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14. In summary, the applicant represents that the proposed

transactions satisfy the criteria of section 408(a) of the Act for the

following reasons: (1) The Plans' investments in the LP were authorized

and are overseen by the Fiduciaries, which are independent of the

Lenders and BTC, and other Plan investments in the LP from other

employee benefit plans subject to the Act will be authorized and

monitored by independent Plan fiduciaries; (2) None of the Lenders

(including BTC) has any influence, authority or control with respect to

any of the Trusts' investment in the LP or the Trusts' execution of the

Estoppel; (3) Each Fiduciary invested in the LP on behalf of a Plan

with the knowledge that the Estoppel is required of all Partners

investing in the LP, and all other Plan fiduciaries that invest their

Plan's assets in the LP will be treated the same as other Partners are

currently treated with regard to the Estoppel; (4) Any Plan which has

invested or may invest in the LP in the future, which needs to avail

itself of the exemption proposed herein, has or will have assets of not

less than $100 million,5 and not more than 5% of the assets

of any such Plan are or will be invested in the LP; and (5) the General

Partner of the LP is independent of BTC, the Lenders and the Plans.

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\5\ See footnote 4, ibid.

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For Further Information Contact: Gary H. Lefkowitz of the

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

Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), Located

in New York, NY

[Exemption Application No. D-10772]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

2570, Subpart B (55 FR 32836, 32847, August 10, 1990).6

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\6\ For purposes of this proposed exemption, reference to

provisions of Title I of the Act, unless otherwise specified, refer

also to corresponding provisions of the Code.

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Section I. Covered Transactions

A. The restrictions of section 406(a)(1))(A) through (D) of the Act

and the sanctions resulting from the application of section 4975 of the

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

not apply to any purchase or sale of a security between certain

affiliates of DLJ which are foreign broker-dealers (the Foreign

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

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

including options written by a Plan, DLJ or a Foreign Affiliate

provided that the following conditions and the General Conditions of

Section II, are satisfied:

(1) The Foreign Affiliate customarily purchases and sells

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

as a broker-dealer;

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

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

transaction with an unrelated party; and

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

discretionary authority or control with respect to the investment of

the Plan assets involved in the transaction, or renders investment

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

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

disqualified person with respect to the Plan assets involved in the

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

4975(e)(2)(B) of the Code, or by reason

[[Page 51798]]

of a relationship to a person described in such sections. For purposes

of this paragraph, the Foreign Affiliate shall not be deemed to be a

fiduciary with respect to Plan assets solely by reason of providing

securities custodial services for a Plan.

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

406(b)(2) of the Act and the sanctions resulting from the application

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

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

Plans by the Foreign Affiliates to permit the settlement of securities

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

principal basis, or in connection with the writing of options

contracts, provided that the following conditions and the General

Conditions of Section II are satisfied:

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

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

consideration is received by the Foreign Affiliate or an affiliate

thereof, in connection with such extension of credit; and

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

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

thereunder if such Act, rules or regulations were applicable.

C. The restrictions of section 406(a)(1)(A) through (D) of the Act

and the sanctions resulting from the application of section 4975 of the

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

not apply to the lending of securities to the Foreign Affiliates by the

Plans, provided that the following conditions and the General

Conditions of Section II are satisfied:

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

discretionary authority or control with respect to the investment of

Plan assets involved in the transaction, or renders investment advice

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

assets;

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

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

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

securities are delivered to the Foreign Affiliate, collateral

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

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

bank letters of credit issued by persons other than the Foreign

Affiliate or an affiliate of the Foreign Affiliate, or any combination

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

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

States;

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

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

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

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

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

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

series of securities lending transactions, and which contains terms at

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

arm's length transaction with an unrelated party;

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

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

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

derive compensation through the investment of cash collateral. In the

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

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

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

unrelated party;

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

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

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

as a result of stock splits and rights to purchase additional

securities that the Plan would have received (net of tax withholdings)

7 had it remained the record owner of such securities.

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\7\ The Department notes the applicant's representation that

dividends and other distributions on foreign securities payable to a

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

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

a position as it would have been in had it not lent the securities.

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

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

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

Foreign Affiliate delivers additional collateral, by the close of the

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

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

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

borrowed securities, the Foreign Affiliate may require the Plan to

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

100 percent;

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

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

available audited statement of the Foreign Affiliate's financial

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

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

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

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

not been disclosed since the date of the most recent financial

statement furnished to the independent Plan fiduciary. Such

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

each loan of securities shall constitute a representation that there

has been no such material adverse change;

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

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

shall deliver certificates for securities identical to the borrowed

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

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

the Plan within (a) the customary delivery period for such securities,

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

the Plan and the Foreign Affiliate, whichever is least, or,

alternatively such period as permitted by Prohibited Transaction Class

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

FR 18754, May 19, 1987), as it may be amended or superseded.\8\

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\8\ PTCE 81-6 provides an exemption under certain conditions

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

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

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

a U.S. broker-dealer registered under the 1934 Act (or exempted from

registration under the 1934 Act as a dealer in exempt Government

securities, as defined therein).

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

Affiliate fails to return the borrowed securities or the equivalent

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

purchase securities identical to the borrowed securities (or their

equivalent as described above) and may apply the collateral to the

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

Affiliate under the Loan Agreement, and any expenses associated with

the sale and/or purchase. The Foreign Affiliate is obligated to pay,

under the terms of the Loan Agreement, and does pay, to the Plan, the

amount of any remaining obligations and expenses not covered by the

collateral, plus interest at a reasonable rate. Notwithstanding the

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

borrowed securities as

[[Page 51799]]

described above, replace non-cash collateral with an amount of cash not

less than the then current market value of the collateral, provided

that such replacement is approved by the independent Plan fiduciary;

and

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

Agreement in accordance with the indicia of ownership requirements

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

29 CFR 2550.404b-1. However, in the event that the independent Plan

fiduciary does not maintain the situs of the Loan Agreement in

accordance with the indicia of ownership requirements of section 404(b)

of the Act, the Foreign Affiliate shall not be subject to the civil

penalty which may be assessed under section 502(i) of the Act, or the

taxes imposed by section 4975(a) and (b) of the Code.

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

exemption in the course of engaging in a securities lending

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

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

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

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

conditions of the exemption.

Section II. General Conditions

A. The Foreign Affiliate is a registered broker-dealer subject to

regulation by a governmental agency, as described in Section III. B.,

and is in compliance with all applicable rules and regulations thereof

in connection with any transactions covered by this exemption;

B. The Foreign Affiliate, in connection with any transactions

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

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

Exchange Commission (the SEC) interpretations thereof, providing for

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

registration requirements.

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

written agreement with the Plan in which the Foreign Affiliate consents

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

action or proceeding brought in respect of the subject transactions.

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

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

transaction such records as are necessary to enable the persons

described in paragraph E to determine whether the conditions of this

exemption have been met except that--

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

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

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

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

available for examination, as required by paragraph E.; and

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

if, due to circumstances beyond the control of the Foreign Affiliate,

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

period;

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

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

referred to above in paragraph D., unconditionally available for

examination during normal business hours at their customary location to

the following persons or an authorized representative thereof:

(1) The Department, the Internal Revenue Service or the SEC;

(2) Any fiduciary of a Plan;

(3) Any contributing employer to a Plan;

(4) Any employee organization any of whose members are covered by a

Plan; and

(5) Any participant or beneficiary of a Plan. However, none of the

persons described above in paragraphs (2)-(5) of this paragraph E.

shall be authorized to examine trade secrets of the Foreign Affiliate,

or any commercial or financial information which is privileged or

confidential.

F. Prior to any Plan's approval of any transaction with a Foreign

Affiliate, the Plan is provided copies of the proposed and final

exemption with respect to the exemptive relief granted herein.

Section III. Definitions

For purposes of this proposed exemption,

A. The term ``DLJ'' as referred to in Parts A., B., and C. of

Section I., means Donaldson, Lufkin & Jenrette Securities Corporation.

B. The term ``affiliate'' of another person shall include:

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

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, or partner, employee or relative (as

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

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

officer, director or partner. (For purposes of this definition, the

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

over the management or policies of a person other than an individual.)

C. The term ``Foreign Affiliate,'' shall mean a current or future

affiliate of DLJ that is subject to regulation as a broker-dealer by--

(1) The Securities and Futures Authority (the SFA), in the United

Kingdom; or

(2) The Australian Securities & Investments Commission (ASIC) in

Australia.

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

securities, options on equity and on fixed income securities,

government obligations, and any other instrument that constitutes a

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

include swap agreements or other notional principal contracts.

Summary of Facts and Representations

1. DLJ is a broker-dealer registered with the SEC, a full-line

investment services firm which is a member of the New York Stock

Exchange and other principal securities exchanges in the United States,

and a member of the National Association of Securities Dealers. DLJ is

one of the largest investment services firms in the United States. DLJ

is the principal operating subsidiary of Donaldson, Lufkin & Jenrette,

Inc. (DLJ, Inc.) which is currently owned by The Equitable Companies

Incorporated as well as public shareholders. As of March 31, 1999, DLJ,

Inc. had total assets of $90,254,264,000 and $3,069,124,000 in

stockholders' equity.

DLJ has several foreign affiliates that are broker-dealers or

banks. The proposed exemption would cover the Foreign Affiliates listed

below, any current or future affiliates that meet the requirements of

the exemption and their respective regulating entities as follows:

(a) London Global Securities, located in London, England, is

subject to regulation in the United Kingdom by the SFA; and

(b) DLJ Australia Pty. Ltd., located in Melbourne, Victoria,

Australia will be subject to regulation by ASIC.

DLJ requests an individual exemption to permit the Foreign

Affiliates identified above, as well as those others which, in the

future, may be subject to governmental regulation in the United Kingdom

and Australia,\9\ to engage in

[[Page 51800]]

the securities transactions described below with Plans. The proposed

exemption is necessary because the Foreign Affiliates may be parties in

interest with respect to the Plans under the Act, by virtue of being a

fiduciary (for assets of the Plans other than those involved in the

transactions) or a service provider to such Plans, or by virtue of a

relationship to such fiduciary or service provider.

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\9\ For a description of the SFA, see Representations 5 and 6 of

the Notice of Proposed Exemption for Barclays Bank PLC (63 FR 53714,

53717, October 6, 1998). Similarly, for a description of ASIC, see

Representation 2 of the Notice of Proposed Exemption for Citibank,

N.A. and Salomon Smith Barney, Inc. (64 FR 10493, 10496, March 4,

1999).

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2. DLJ represents that the Foreign Affiliates are subject to

regulation by a governmental agency in the foreign country. DLJ further

represents that registration of a foreign broker-dealer with the

governmental agency in these cases addresses regulatory concerns

similar to those concerns addressed by registration of a broker-dealer

with the SEC under the 1934 Act. The rules and regulations set forth by

the above-referenced agencies and the SEC share a common objective: the

protection of the investor by the regulation of the securities market.

The United Kingdom and Australia both have comprehensive financial

resource and reporting/disclosure rules concerning broker-dealers.

Broker-dealers are required to demonstrate their capital adequacy. The

reporting/disclosure rules impose requirements on broker-dealers with

respect to risk management, internal controls and records relating to

counterparties. All such records must be produced at the request of the

agency at any time. The agencies' registration requirements for broker-

dealers are enforced by fines and penalties and thus constitute a

comprehensive disciplinary system for the violation of such rules.

DLJ represents that in connection with the transactions covered by

this proposed exemption, the Foreign Affiliates' compliance with any

applicable requirements of Rule 15a-6 (17 CFR 240.15a-6) of the 1934

Act (as discussed further in Representation 6, below), and SEC

interpretations thereof, providing for foreign affiliates a limited

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

protections to the Plans.

Principal Transactions

3. DLJ represents that the Foreign Affiliates operate as traders in

dealers' markets wherein they customarily purchase and sell securities

for their own account in the ordinary course of their business as

broker-dealers and engage in purchases and sales of securities,

including options on securities, with their clients. Such trades are

referred to as principal transactions. DLJ represents that the role of

a broker-dealer in a principal transaction in the subject foreign

countries is virtually identical to that of a broker-dealer in a

principal transaction in the United States.

DLJ requests an individual exemption to permit the Foreign

Affiliates to engage in principal transactions with the Plans under

terms and conditions equivalent to those required in PTCE 75-1 (40 FR

50845, October 31, 1975), Part II.\10\ DLJ states that because PTCE 75-

1 provides an exemption only for U.S. registered broker-dealers, the

principal transactions at issue would fall outside the scope of relief

provided by PTCE 75-1.\11\

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\10\ PTCE 75-1, Part II, provides an exemption, under certain

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

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

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

are parties in interest with respect to such plans.

\11\ The Department notes that the proposed principal

transactions are subject to the general fiduciary responsibility

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

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

prudently and solely in the interest of the plan and its

participants and beneficiaries, when making investment decisions on

behalf of the plan.

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4. DLJ represents that like the U.S. dealer markets, international

equity and debt markets, including the options markets, are not less

dependent on a willingness of dealers to trade as principals. Over the

past decade, Plans have increasingly invested in foreign equity and

debt securities, including debt securities issued by foreign

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

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

trading with the Foreign Affiliates.

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

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

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

as a broker-dealer. The terms of any principal transaction will be at

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

comparable arm' length transaction with an unrelated party. Neither the

Foreign Affiliate nor an affiliate thereof will have discretionary

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

involved in the principal transaction or render investment advice

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

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

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

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

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

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

such sections.

6. DLJ represents that Rule 15a-6 of the 1934 Act provides an

exemption from U.S. registration requirements for a foreign broker-

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

security (including over-the-counter equity and debt options) by a

``U.S. institutional investor'' or a ``major U.S. institutional

investor,'' provided that the foreign broker dealer, among other

things, enters into these transactions through a U.S. registered broker

or dealer intermediary.

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

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

Act if:

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

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

association, insurance company or registered investment adviser, or

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

million, or

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

investment decisions made solely by persons that are ``accredited

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

Securities Act of 1933, as amended.

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

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

assets in excess of $100 million.\12\ DLJ represents that the

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

foreign broker-dealer the requirement that the securities transaction

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

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

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\12\ Note that a SEC No-Action Letter has expanded the

categories of entities that qualify as ``major U.S. institutional

investors.'' See SEC No-Action letter issued to Cleary, Gottlieb,

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

Letter).

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DLJ represents that under Rule 15a-6, a foreign broker-dealer that

induces or attempts to induce the purchase or sale of any security by a

U.S. institutional or major institutional investor in accordance with

Rule 15a-6 must, among other things:

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

action brought by or proceeding before the SEC or a self-regulatory

organization;

(b) Provide the SEC with any information or documents within its

possession, custody

[[Page 51801]]

or control, any testimony of any such foreign associated persons,

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

located, that the SEC requests and that relates to transactions

effected pursuant to the Rule;

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

the principal transactions with the U.S. institutional and major

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

(1) Effecting the transactions, other than negotiating their

terms;

(2) Issuing all required confirmations and statements;

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

broker-dealer, extending or arranging for the extension of credit in

connection with the transactions;

(4) Maintaining required books and records relating to the

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

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

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

13

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\13\ DLJ represents that all such requirements relating to

recordkeeping of principal transactions would be applicable to any

Foreign Affiliate in a transaction that would be covered by this

proposed exemption.

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(5) Receiving, delivering, and safeguarding funds and securities

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

institutional investor or the major U.S. institutional investor in

compliance with Rule 15c3-3 of the 1934 Act (Customer Protection--

Reserves and Custody of Securities); 14 and

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\14\ Under certain circumstances described in the April 9, 1997

No-Action Letter (e.g., clearance and settlement transactions),

there may be direct transfers of funds and securities between a Plan

and a Foreign Affiliate. Please note that in such situations (as in

other situations covered by Rule 15a-6), the U.S. registered broker-

dealer will not be acting as a principal with respect to any duties

it is required to undertake pursuant to Rule 15a-6.

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(6) Participating 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 accompanying the foreign associated person on certain visits

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

Under certain circumstances, the foreign associated person may have

direct communications and contact with the U.S. institutional

investor. (See the April 9, 1997 No-Action Letter).15

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\15\ Under certain circumstances described in the April 9, 1997

No-Action Letter (e.g., clearance and settlement transactions),

there may be direct transfers of funds and securities between a Plan

and a Foreign Affiliate. Please note that in such situations (as in

other situations covered by Rule 15a-6), the U.S. broker-dealer will

not be acting as a principal with respect to any duties it is

required to undertake pursuant to Rule 15a-6.

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Extensions of Credit

7. DLJ represents that a normal part of the execution of securities

transactions by broker-dealers on behalf of clients, including Plans,

is the extension of credit to clients so as to permit the settlement of

transactions in the customary settlement period. Such extensions of

credit are customary in connection with the buying and writing of

option contracts.

DLJ requests that the proposed exemption include relief for

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

ordinary course of their purchases or sales of securities, regardless

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

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

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

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

dealers and banks.16

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\16\ PTCE 75-1, Part V, provides an exemption, under certain

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

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

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

registered broker-dealers that are parties in interest with respect

to such plans.

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

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

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

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

other consideration were received by the Foreign Affiliate or an

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

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

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

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

the extension of credit must still be lawful under applicable foreign

law, in the country where the particular Foreign Affiliate is

domiciled.

Securities Lending

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

the borrowing and lending of securities, typically foreign securities,

from various institutional investors, including employee benefit plans.

DLJ requests an exemption for securities lending transactions

between the Foreign Affiliates and the Plans under terms and conditions

equivalent to those required in PTCE 81-6 (46 FR 7527, January 23,

1981, as amended at 52 FR 18754, May 19, 1987).17 Because

PTCE 81-6 provides an exemption only for U.S. registered broker-dealers

and U.S. banks, the securities lending transactions at issue would fall

outside the scope of relief provided by PTCE 81-6.

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\17\ PTCE 81-6 provides an exemption under certain conditions

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

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

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

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

respect to such plans.

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10. The Foreign Affiliates utilize borrowed securities either to

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

dealers and entities that need a particular security for a certain

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

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

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

broker-dealer is required to deliver. DLJ represents that foreign

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

foreign securities. Thus, the requested exemption will increase the

lending demand for such securities, providing the Plans with increased

securities lending opportunities, which will earn such Plans additional

rates of return on the borrowed securities (as discussed below).

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

securities in its portfolio to a broker-dealer in order to earn a fee

while continuing to enjoy the benefits of owning securities (e.g., from

the receipt of any interest, dividends or other distributions due on

those securities and from any appreciation in the value of the

securities). The lender generally requires that the securities loan be

fully collateralized, and the collateral usually is in the form of

cash, irrevocable U.S. bank letters of credit issued by a bank other

than a Foreign Affiliate, or high quality liquid securities such as

U.S. Government or Federal Agency obligations.

12. With respect to the subject securities lending transactions,

neither the Foreign Affiliate nor an affiliate of the Foreign Affiliate

will have discretionary authority or control with respect to the

investment of Plan assets involved in the transaction, or render

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

respect to those assets.

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

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

physical delivery, book entry in a U.S. securities depository, wire

transfer or similar means) collateral consisting of cash, securities

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

irrevocable U.S. bank letters of credit issued by persons other than

the Foreign Affiliate or an affiliate of the Foreign Affiliate, or any

combination thereof. All collateral will be in U.S. dollars, or dollar-

denominated securities or bank letters of credit, and will be held in

the United States. The collateral will have, as of the close of

business on the business day

[[Page 51802]]

preceding the day it is posted by the Foreign Affiliate, a market value

equal to at least 100 percent of the then market value of the loaned

securities (or, in the case of letters of credit, a stated amount equal

to same).

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

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

securities lending transactions between the Plan and the Foreign

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

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

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

will also contain a requirement that the Foreign Affiliate pay all

transfer fees and transfer taxes relating to the securities loans.

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

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

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

derive compensation through the investment of cash collateral. In the

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

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

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

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

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

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

the loan. Such distributions will include cash dividends, interest

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

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

of tax withholdings) had it remained the record owner of such

securities.

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

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

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

Foreign Affiliate will deliver additional collateral, by the close of

business on the following business day, to bring the level of the

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

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

borrowed securities, the Foreign Affiliate may require the Plan to

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

100 percent.

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

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

audited statement of the Foreign Affiliate's financial condition, (b)

the most recent available unaudited statement of its financial

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

representation that, at the time the loan is negotiated, there has been

no material adverse change in its financial condition since the date of

the most recent financial statement furnished to the independent Plan

fiduciary. Such representation may be made by the Foreign Affiliate's

agreeing that each loan of securities shall constitute a representation

that there has been no such material adverse change.

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

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

will deliver certificates for securities identical to the borrowed

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

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

the Plan within (a) the customary delivery period for such securities,

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

the Plan and the Foreign Affiliate, whichever is least, or

alternatively, such period as permitted by PTCE 81-6, as it may be

amended or superseded. In the event the Foreign Affiliate fails to

return the borrowed securities, or the equivalent thereof, within the

designated time, the Plan will have certain rights under the Loan

Agreement to realize upon the collateral. The Plan may purchase

securities identical to the borrowed securities, or the equivalent

thereof, and may apply the collateral to the payment of the purchase

price, any other obligations of the Foreign Affiliate under the Loan

Agreement, and any expenses associated with replacing the borrowed

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

amount of any remaining obligations and expenses not covered by the

collateral, plus interest at a reasonable rate as determined in

accordance with an independent market source. Notwithstanding the

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

borrowed securities as described above, replace non-cash collateral

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

the collateral, provided that such replacement is approved by the

independent Plan fiduciary.

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

Loan Agreement in accordance with the indicia of ownership requirements

of section 404(b) of the Act and the regulations promulgated under 29

CFR 2550.404b-1.18.

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\18\ Section 404(b) of the Act states that no fiduciary may

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

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

as authorized by regulation by the Secretary of Labor.

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

will satisfy the statutory criteria for an exemption under section

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

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

Affiliates, the proposed exemption will enable Plans to realize the

same benefits of efficiency and convenience which such Plans could

derive from principal transactions with U.S. registered broker-dealers

pursuant to PTCE 75-1, Part II;

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

purchases or sales of securities, the proposed exemption will enable

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

course of the Foreign Affiliate's business to effect agency or

principal transactions within the customary settlement period, or in

connection with the writing of options contracts, for transactions

between plans and broker-dealers, as is possible for U.S. registered

broker-dealers pursuant to PTCE 75-1, Part V;

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

Foreign Affiliates, the proposed exemption will enable the Plans to

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

idle, as in securities lending transactions executed by Plans and U.S.

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

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

same protections and benefits as those provided by PTCE 75-1 and PTCE

81-6.

Notice to Interested Persons

The applicant represents that because those Plans that will be

potentially interested in the transactions cannot be identified at this

time, the only practical means of notifying Plan fiduciaries is by the

publication of the notice of proposed exemption in the Federal

Register. Therefore, comments and requests for a hearing must be

received by the Department not later than 30 days from the date of the

publication of this proposed exemption in the Federal Register.

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

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

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

[[Page 51803]]

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 that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 21st day of September 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-24940 Filed 9-23-99; 8:45 am]

BILLING CODE 4510-29-P