[Federal Register Volume 65, Number 50 (Tuesday, March 14, 2000)]
[Notices]
[Pages 13836-13859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6047]



[[Page 13835]]

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Part II





Department of Labor





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Pension and Welfare Benefits Administration



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Proposed Exemptions; Barclays Bank PLC and its Affiliates 
(Collectively, Barclays); Notice

  Federal Register / Vol. 65, No. 50 / Tuesday, March 14, 2000 / 
Notices  

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10188, et al.]


Proposed Exemptions; Barclays Bank PLC and its Affiliates 
(Collectively, Barclays)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    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, 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 
the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, Room N-5638, 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, 5 U.S.C. App. 1 (1996), 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.

Barclays Bank PLC and its Affiliates (collectively, Barclays)

Located in London, England
[Application No. D-10188]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act, section 4975(c)(2) of the Code, 
and section 8477(c)(3) of FERSA, in accordance with the procedures set 
forth in 29 CFR part 2570, Subpart B (55 FR 32836, 32847, August 10, 
1990).

Section I--Retroactive Exemption for thE Acquisition, Holding and 
Disposition of Barclays PLC Stock

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(D), 406(b)(1) 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)(D) and (E) of the Code, shall not apply, as of 
December 31, 1995 until the date this proposed exemption is granted, to 
the acquisition, holding and disposition of the common stock of 
Barclays PLC (the Barclays PLC Stock) by Index and Model-Driven Funds 
managed by Barclays, provided that the following conditions and the 
general conditions in Section III are met:
    (a) The acquisition or disposition of the Barclays PLC Stock is for 
the sole purpose of maintaining strict quantitative conformity with the 
relevant index upon which the Index or Model-Driven Fund is based, and 
does not involve any agreement, arrangement or understanding regarding 
the design or operation of the Fund acquiring the Barclays PLC Stock 
which is intended to benefit Barclays or any party in which Barclays 
may have an interest.
    (b) All aggregate daily purchases of Barclays PLC Stock by the 
Funds do not exceed on any particular day the greater of:
    (1) 15 percent of the average daily trading volume for the Barclays 
PLC Stock occurring on the applicable exchange or automated trading 
system (as described in paragraph (c) below) for the previous five (5) 
business days, or
    (2) 15 percent of the trading volume for Barclays PLC Stock 
occurring on the applicable exchange or automated trading system on the 
date of the transaction, as determined by the best available 
information for the trades occurring on that date.
    (c) All purchases and sales of Barclays PLC Stock occur either (i) 
on the London Stock Exchange, a recognized securities exchange as 
defined in Section IV(k) below, (ii) through an automated trading 
system (as defined in Section IV(j) below) operated by a broker-dealer 
independent of Barclays that is subject to regulation and supervision 
by the Securities and Futures Authority of the United Kingdom (pursuant 
to the applicable securities laws) that provides a mechanism for 
customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer, or (iii) in a direct, arms-length 
transaction entered into on a principal basis with a broker-dealer, in 
the ordinary course of its business, where such broker-dealer is 
independent of Barclays and is either registered under the Securities 
Exchange Act of 1934 (the `34 Act), and thereby subject to regulation 
by the U.S. Securities and Exchange Commission (SEC), or subject to 
regulation and supervision by the Securities and Futures Authority of 
the United Kingdom (UK).
    (d) No transactions by a Fund involve purchases from, or sales to, 
Barclays (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund.
    (e) No more than five (5) percent of the total amount of Barclays 
PLC Stock issued and outstanding at any time is held in the aggregate 
by Index and Model-Driven Funds managed by Barclays.

[[Page 13837]]

    (f) Barclays PLC Stock constitutes no more than three (3) percent 
of any independent third party index on which the investments of an 
Index or Model-Driven Fund are based.
    (g) A plan fiduciary independent of Barclays authorizes the 
investment of such plan's assets in an Index or Model-Driven Fund which 
purchases and/or holds Barclays PLC Stock, pursuant to the procedures 
described herein (see Paragraph 11 of the Summary of Facts and 
Representations below regarding portfolio management services provided 
for particular plans).
    (h) A fiduciary independent of Barclays directs the voting of the 
Barclays PLC Stock held by an Index or Model-Driven Fund on any matter 
in which shareholders of Barclays PLC Stock are required or permitted 
to vote.

Section II--Prospective Exemption for the Acquisition, Holding and 
Disposition of Barclays Stock

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(D), 406(b)(1) and 406(b)(2) of the Act, section 8477(c)(2)(A) 
and (B) of FERSA, and the sanctions resulting from the application of 
section 4975 of the Code by reason of section 4975(c)(1)(D) and (E) of 
the Code, shall not apply to the acquisition, holding and disposition 
of Barclays PLC Stock or the common stock of an Affiliate of Barclays 
PLC (Barclays PLC Affiliate Stock) by Index and Model-Driven Funds 
managed by Barclays, provided that the following conditions and the 
general conditions in Section III are met:
    (a) The acquisition or disposition of Barclays PLC Stock or 
Barclays PLC Affiliate Stock (collectively, Barclays Stock) is for the 
sole purpose of maintaining strict quantitative conformity with the 
relevant index upon which the Index or Model-Driven Fund is based, and 
does not involve any agreement, arrangement or understanding regarding 
the design or operation of the Fund acquiring the Barclays Stock which 
is intended to benefit Barclays or any party in which Barclays may have 
an interest.
    (b) Whenever Barclays Stock is initially added to an index on which 
an Index or Model-Driven Fund is based, or initially added to the 
portfolio of an Index or Model-Driven Fund, all acquisitions of 
Barclays Stock necessary to bring the Fund's holdings of such Stock 
either to its capitalization-weighted or other specified composition in 
the relevant index, as determined by the independent organization 
maintaining such index, or to its correct weighting as determined by 
the model which has been used to transform the index, occur in the 
following manner:
    (1) Purchases are from, or through, only one broker or dealer on a 
single trading day;
    (2) Based on the best available information, purchases are not the 
opening transaction for the trading day;
    (3) Purchases are not effected in the last half hour before the 
scheduled close of the trading day;
    (4) Purchases are at a price that is not higher than the lowest 
current independent offer quotation, determined on the basis of 
reasonable inquiry from non-affiliated brokers;
    (5) Aggregate daily purchases do not exceed 15 percent of the 
average daily trading volume for the security, as determined by the 
greater of either (i) the trading volume for the security occurring on 
the applicable exchange or automated trading system on the date of the 
transaction, or (ii) an aggregate average daily trading volume for the 
security occurring on the applicable exchange or automated trading 
system for the previous five (5) business days, both based on the best 
information reasonably available at the time of the transaction;
    (6) All purchases and sales of Barclays Stock occur either (i) on a 
recognized securities exchange (as defined in Section IV(k) below), 
(ii) through an automated trading system (as defined in Section IV(j) 
below) operated by a broker-dealer independent of Barclays that is 
either registered under the ''34 Act, and thereby subject to regulation 
by the SEC, or subject to regulation and supervision by the Securities 
and Futures Authority of the UK, which provides a mechanism for 
customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer, or (iii) through an automated trading 
system (as defined in Section IV(j) below) that is operated by a 
recognized securities exchange (as defined in Section IV(k) below), 
pursuant to the applicable securities laws, and provides a mechanism 
for customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer; and
    (7) If the necessary number of shares of Barclays Stock cannot be 
acquired within 10 business days from the date of the event which 
causes the particular Fund to require Barclays Stock, Barclays appoints 
a fiduciary which is independent of Barclays to design acquisition 
procedures and monitor Barclays' compliance with such procedures.
    (c) Subsequent to acquisitions necessary to bring a Fund's holdings 
of Barclays Stock to its specified weighting in the index or model 
pursuant to the restrictions described in paragraph (b) above, all 
aggregate daily purchases of Barclays Stock by the Funds do not exceed 
on any particular day the greater of:
    (1) 15 percent of the average daily trading volume for the Barclays 
Stock occurring on the applicable exchange or automated trading system 
(as defined below) for the previous five (5) business days, or
    (2) 15 percent of the trading volume for Barclays Stock occurring 
on the applicable exchange or automated trading system (as defined 
below) on the date of the transaction, as determined by the best 
available information for the trades that occurred on such date.
    (d) All transactions in Barclays Stock not otherwise described in 
paragraph (b) above are either: (i) Entered into on a principal basis 
in a direct, arms-length transaction with a broker-dealer, in the 
ordinary course of its business, where such broker-dealer is 
independent of Barclays and is either registered under the `34 Act, and 
thereby subject to regulation by the SEC, or subject to regulation and 
supervision by the Securities and Futures Authority of the UK (SFA-UK), 
(ii) effected on an automated trading system (as defined in Section 
IV(j) below) operated by a broker-dealer independent of Barclays that 
is subject to regulation by either the SEC or SFA-UK, or an automated 
trading system operated by a recognized securities exchange (as defined 
in Section IV(k) below) which, in either case, provides a mechanism for 
customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer, or (iii) effected through a 
recognized securities exchange (as defined in Section IV(k) below) so 
long as the broker is acting on an agency basis.
    (e) No transactions by a Fund involve purchases from, or sales to, 
Barclays (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund.
    (f) No more than five (5) percent of the total amount of either 
Barclays PLC Stock or any Barclays PLC Affiliate Stock, that is issued 
and outstanding at any time, is held in the aggregate by Index and 
Model-Driven Funds managed by Barclays.
    (g) Barclays Stock constitutes no more than five (5) percent of any 
independent third party index on which the investments of an Index or 
Model-Driven Fund are based.
    (h) A plan fiduciary independent of Barclays authorizes the 
investment of

[[Page 13838]]

such plan's assets in an Index or Model-Driven Fund which purchases 
and/or holds Barclays Stock, pursuant to the procedures described 
herein (see Paragraph 11 of the Summary of Facts and Representations 
below regarding portfolio management services provided for particular 
plans).
    (i) A fiduciary independent of Barclays directs the voting of the 
Barclays Stock held by an Index or Model-Driven Fund on any matter in 
which shareholders of Barclays Stock are required or permitted to vote.

Section III--General Conditions

    (a) Barclays maintains or causes to be maintained for a period of 
six years from the date of the transaction the records necessary to 
enable the persons described in paragraph (b) of this Section to 
determine whether the conditions of this exemption have been met, 
except that (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Barclays, the 
records are lost or destroyed prior to the end of the six-year period, 
and (2) no party in interest other than Barclays shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act 
or to the taxes imposed by section 4975(a) and (b) of the Code if the 
records are not maintained or are not available for examination as 
required by paragraph (b) below.
    (b)(1) Except as provided in paragraph (b)(2) and notwithstanding 
any provisions of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (a) of this Section are unconditionally 
available at their customary location for examination during normal 
business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of 
the plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer to any plan participating in an Index 
or Model-Driven Fund or any duly authorized employee or representative 
of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
Index or Model-Driven Fund, or a representative of such participant or 
beneficiary.
    (2) None of the persons described in subparagraphs (B) through (D) 
of this paragraph (b) shall be authorized to examine trade secrets of 
Barclays or commercial or financial information which is considered 
confidential.

Section IV--Definitions

    (a) The term ``Index Fund'' means any investment fund, account or 
portfolio sponsored, maintained, trusteed, or managed by Barclays, in 
which one or more investors invest, and--
    (1) which is designed to track the rate of return, risk profile and 
other characteristics of an independently maintained securities Index, 
as described in Section IV(c) below, by either (i) replicating the same 
combination of securities which compose such Index or (ii) sampling the 
securities which compose such Index based on objective criteria and 
data;
    (2) for which Barclays does not use its discretion, or data within 
its control, to affect the identity or amount of securities to be 
purchased or sold;
    (3) that contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and,
    (4) that involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund which is intended to 
benefit Barclays or any party in which Barclays may have an interest.
    (b) The term ``Model-Driven Fund'' means any investment fund, 
account or portfolio sponsored, maintained, trusteed, or managed by 
Barclays, in which one or more investors invest, and--
    (1) which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third party data, not 
within the control of Barclays, to transform an independently 
maintained Index, as described in Section IV(c) below;
    (2) which contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (3) that involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund or the utilization of any 
specific objective criteria which is intended to benefit Barclays or 
any party in which Barclays may have an interest.
    (c) The term Index means a securities index that represents the 
investment performance of a specific segment of the public market for 
equity or debt securities in the United States and/or foreign 
countries, but only if--
    (1) the organization creating and maintaining the index is--
    (A) engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients,
    (B) a publisher of financial news or information, or
    (C) a public stock exchange or association of securities dealers; 
and,
    (2) the index is created and maintained by an organization 
independent of Barclays; and,
    (3) the index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of Barclays.
    (d) The term opening date means the date on which investments in or 
withdrawals from an Index or Model-Driven Fund may be made.
    (e) The term Buy-up means an acquisition of Barclays Stock by an 
Index or Model-Driven Fund in connection with the initial addition of 
such Stock to an independently maintained index upon which the Fund is 
based or the initial investment of a Fund in such Stock.
    (f) The term Barclays refers to Barclays PLC and its Affiliates, as 
defined below in paragraph (g), including BZW Barclays Global 
Investors, N.A., BZW Barclays Global Fund Advisors, BZW Barclays Global 
Investors Services, BZW Investment Management, Inc., Barclays Bank PLC 
(London), Barclays Bank of Canada, Barclays Bank Zimbabwe, Barclays 
Bank of Kenya, and Barclays Bank of Botswana, Ltd.
    (g) The term Affiliate means, with respect to Barclays PLC, an 
entity which, directly or indirectly, through one or more 
intermediaries, is controlled by Barclays PLC;
    (h) An affiliate of Barclays includes:
    (1) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
the person;
    (2) Any officer, director, employee or relative of such person, or 
partner of any such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner or employee.
    (i) The term control means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (j) The term automated trading system means an electronic trading 
system that functions in a manner intended to simulate a securities 
exchange by electronically matching orders on an agency basis from 
multiple buyers and sellers, such as an ``alternative trading system'' 
within the meaning of the SEC's Reg. ATS [17 CFR part 242.300], as such 
definition may be amended from time to time, or an ``automated

[[Page 13839]]

quotation system'' as described in Section 3(a)(51)(A)(ii) of the '34 
Act [15 U.S.C. 78c(a)(51)(A)(ii)].
    (k) The term recognized securities exchange means a U.S. securities 
exchange that is registered as a ``national securities exchange'' under 
Section 6 of the '34 Act (15 U.S.C. 78f), or a designated offshore 
securities market, as defined in Regulation S of the SEC [17 CFR part 
230.902(b)], as such definition may be amended from time to time, which 
performs with respect to securities the functions commonly performed by 
a stock exchange within the meaning of definitions under the applicable 
securities laws (e.g., 17 CFR part 240.3b-16).

EFFECTIVE DATE: The proposed exemption, if granted, will be effective 
as of December 31, 1995, for those transactions described in Section I 
above, and as of the date the final grant is published in the Federal 
Register for those transactions described in Section II above.

Summary of Facts And Representations

    1. Barclays Global Investors, N.A. (``BGI'') is a national banking 
association which provides investment advisory, trust and related 
services to employee benefit plans and other fiduciary clients. BGI is 
an indirect subsidiary of Barclays PLC, a bank holding company 
incorporated under the laws of England and Wales, and Barclays Bank PLC 
(Barclays Bank), a bank incorporated under the laws of England and 
Wales and a subsidiary of Barclays PLC. BGI currently has two 
subsidiaries, both of which are California corporations and investment 
advisers registered under the Investment Advisers Act of 1940 (the 
``Advisers Act''). The first subsidiary, BZW Barclays Global Fund 
Advisers, provides investment advice to accounts and funds, including 
as an investment adviser or sub-adviser to certain mutual funds. The 
second subsidiary, BZW Barclays Global Investors Services, is 
registered as a broker-dealer and provides services to BGI and certain 
of its affiliates. In addition to BGI and its subsidiaries, Barclays 
Bank and certain of its affiliates may act as fiduciaries to ERISA-
covered accounts and funds. BZW Investment Management, Inc., a Delaware 
corporation, is an investment adviser under the Advisers Act. BZW Asset 
Risk Management Limited, a corporation organized under the laws of 
England and Wales, is also registered as an investment adviser under 
the Advisers Act. The ``Applicants'' are BGI and those other Affiliates 
of Barclays PLC that act or may act in the future as fiduciaries to 
ERISA-covered plans.
    2. On December 31, 1995, Barclays Bank and certain of its 
affiliates acquired Wells Fargo Nikko Investment Advisors (WFNIA) and 
Wells Fargo Institutional Trust Company, N.A. (WFITC). WFITC became BZW 
Barclays Global Investors, N.A. (i.e. BGI) and WFNIA became BZW 
Barclays Global Fund Advisors (BZW Advisors).
    Prior to January 1, 1996, WFITC and WFNIA maintained and managed 
Index and Model-Driven Funds which held assets of ERISA-covered 
employee benefit plans. Cross-trades of securities occurred among these 
Funds, as well as between the Funds and certain large pension plans, 
pursuant to Prohibited Transaction Exemption (PTE) 92-11 (56 FR 7800, 
March 4, 1992), an exemption issued to Wells Fargo Bank, N.A. and its 
affiliates (including at such time WFNIA and WFITC).\1\ Part II of PTE 
92-11 permitted Index and Model-Driven Funds maintained by Wells Fargo 
to acquire, hold and dispose of the common stock of Wells Fargo & Co. 
(WFC Stock).
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    \1\ PTE 92-11 superseded PTE 87-51 (52 FR 22558, June 12, 1987). 
Currently, Wells Fargo has an exemption application before the 
Department which seeks to amend PTE 92-11 (see Exemption Application 
No. D-9584).
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    The Applicants represent that as a result of the sale of WFNIA and 
WFITC to Barclays Bank, an individual exemption similar to that granted 
to Wells Fargo (i.e., Part II of PTE 92-11) for the acquisition, 
holding and disposition of WFC Stock is necessary, after December 31, 
1995, to enable certain Index and Model-Driven Funds maintained by 
Barclays Bank and its Affiliates to acquire, hold and dispose of the 
common stock of Barclays PLC (i.e., Barclays PLC Stock). In this 
regard, there have been seven (7) Funds that, since December 31, 1995, 
have acquired, held and/or disposed of Barclays PLC Stock.\2\ The 
Applicants request a retroactive exemption, effective as of December 
31, 1995, to the date this proposed exemption is granted to permit such 
transactions by these Funds. The Applicants are not requesting any 
retroactive relief for the acquisition, holding or disposition of the 
common stock of any Affiliates of Barclays PLC (i.e., Barclays PLC 
Affiliate Stock). The Applicants represent that no Index or Model-
Driven Funds containing ``plan assets'' covered by the Act \3\ have 
held such Stock. The Applicants also request that any further exemptive 
relief for cross-trades of securities by Index and Model-Driven Funds 
maintained by Barclays be considered separately.\4\
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    \2\ The Applicants state that acquisitions of Barclays PLC Stock 
have been made only by Funds that already held such Stock in their 
portfolios as of December 31, 1995. Thus, there have been no new 
acquisitions of Barclays PLC Stock by any Funds as a result of an 
initial addition of such Stock to their portfolios since that time. 
Such initial additions of Barclays PLC Stock will only be made by a 
Fund once this proposed exemption is granted, under the conditions 
required herein for a ``buy-up'' period (see Section II(b) above).
    \3\ See 29 CFR 2510.3-101; Definition of ``plan assets''--plan 
investments.
    \4\ In this regard, the Department directs interested persons to 
the Proposed Class Exemption for Cross-Trades of Securities by Index 
and Model-Driven Funds (the Cross-Trading Proposal) which was 
published in the Federal Register on December 15, 1999 (64 FR 
70057). The Department notes that Section II(h) of the Cross-Trading 
Proposal states that the cross-trading of securities by an Index or 
Model-Driven Fund may not involve any security issued by the 
investment manager for the Fund unless such manager has obtained a 
separate prohibited transaction exemption for the acquisition of 
such security. Thus, the Cross-Trading Proposal would, if granted, 
permit Index and Model-Driven Funds maintained by Barclays to cross-
trade Barclays Stock, pursuant to the conditions to be contained 
therein, if this proposed exemption is granted. The Applicants 
represent that currently cross-trades of Barclays PLC Stock by the 
Funds which hold such Stock are covered by PTE 92-11. However, the 
Department is providing no opinion in this proposed exemption as to 
whether any cross-trades of stocks, including Barclays PLC Stock, by 
such Funds meet the conditions necessary for relief under PTE 92-11.
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    3. The Applicants represent that they provide investment advisory 
and management services to ERISA-covered plans through separately 
managed accounts and through collective investment vehicles. The 
Applicants' investment management services include indexed, 
quantitative, and structured investment strategies. In addition to 
ERISA-covered plans, the Applicants' clients include retirement plans 
with non-U.S. participants, governmental entities, governmental plans, 
church plans, mutual funds, and other institutional investors.
    One of BGI's clients is the Federal Employees' Thrift Savings Plan 
(the Federal Thrift Plan) established pursuant to the provisions of the 
Federal Employees Retirement System Act of 1986 (FERSA) with respect to 
which BGI manages the assets of the Common Stock Index Investment Fund 
(the C Fund) and Fixed Income Investment Fund (the F Fund) through 
investing such assets in collective investment funds maintained by BGI. 
The Applicants state that the Federal Retirement Thrift Investment 
Board is planning to begin investing the Federal Thrift Plan in an 
Index Fund consisting of international equity securities, and such Fund 
is anticipated to include Barclays PLC Stock. Thus, the Applicants 
request that this proposed exemption provide prospective relief

[[Page 13840]]

under FERSA to acquire, hold and dispose of Barclays Stock.
    4. In their capacity as fiduciary of an employee benefit plan, the 
Applicants may be directed by an independent plan fiduciary or a plan 
participant that has the ability to direct investments for his/her plan 
account under the plan document. Alternatively, in those cases in which 
the Applicants manage investments made for the plan, the Applicants 
represent that their discretionary authority over whether the plan 
invests in particular Funds is restricted by an independent plan 
fiduciary, unless the plan subscribes to Applicants' Portfolio 
Management in Funds (PMF) services (as discussed below).
    5. The Applicants request that Index and Model-Driven Funds be 
permitted to invest in Barclays Stock if such Stock is included among 
the securities listed in the index utilized by the Fund. The Applicants 
have identified over twenty (20) indices that currently include either 
Barclays PLC Stock or Barclays PLC Affiliate Stock. Indexes which 
include Barclays PLC Stock are the FT-SE All Share Index, the MSCI UK 
Index, the FT-SE 100 Index, the FTSE Eurotop 100 Index, the FTSE 
Eurotop 300 Index, the FTSE E300 Financial Index, and the Bloomberg 
Europe Index. These indexes are compiled by financial information 
agencies, such as Standard & Poor's, Financial Times Ltd., and Morgan 
Stanley & Company International. These agencies are engaged in the 
provision of financial information or securities brokerage services to 
institutional investors and/or are publishers of financial information. 
In each instance, the indexes are compiled by organizations that are 
independent of Barclays and are generally accepted standardized indices 
of securities that are not tailored for the use of Barclays. While many 
of these indexes are not currently utilized by BGI for its Index and 
Model-Driven Funds, there is a possibility that Funds holding assets of 
ERISA-covered plans will be established in the future that are based on 
these indexes.
    The Applicants represent that there were at least seven (7) 
different Index Funds maintained by BGI that included Barclays PLC 
Stock in their portfolios as of December 31, 1995. These Funds were the 
BGI MSCI Equity Index Fund--UK; the BGI MSCI Equity Index Fund B--UK; 
the BGI EAFE Equity Index Fund P; the BGI Exxon UK Alpha Tilts Fund; 
the BGI UK Equity Index Fund; the BGI UK Alpha Tilts Fund; and the BGI 
UK Alpha Tilts Fund B.
    However, since December 31, 1995, BGI has excluded Barclays Stock 
from the portfolios of any new Index and Model-Driven Funds even though 
such Stock is included in independently maintained indexes upon which 
such Funds are based. For those Index Funds whose goal is to replicate 
the rate of return of the index by tracking the capitalization-weighted 
composition of securities listed in the index, such exclusions of 
Barclays Stock create tracking errors which must be accounted for by 
re-weighting other securities in the index. For Model-Driven Funds that 
transform an index in a model-prescribed way, such exclusions of 
Barclays Stock create operational inefficiencies and strategic 
uncertainties that affect the criteria and data necessary to achieve 
the desired rates of return.
    6. The Applicants state that the proposed exemption is necessary to 
allow Funds holding ``plan assets'' to purchase and hold Barclays Stock 
in order to replicate the capitalization-weighted or other specified 
composition of Barclays Stock in an independently maintained third 
party index used by an Index Fund or to achieve the desired 
transformation of an index used to create a portfolio for a Model-
Driven Fund.\5\
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    \ 5\ The Applicants are not requesting any relief from sections 
406 or 407(a) of the Act in connection with the acquisition and 
holding of Barclays Stock by any employee benefit plans established 
and maintained by Barclays for its own employees (the Barclays 
Plans) which invest in the Applicants' Index Funds. In this regard, 
such transactions may be covered by the statutory exemption under 
section 408(e) of the Act, if the conditions of that exemption are 
met. However, the Department is not providing an opinion in this 
proposed exemption as to whether the conditions of section 408(e) of 
the Act are met.
---------------------------------------------------------------------------

    In addition, the Applicants represent that there will be instances, 
once this proposed exemption is granted, when Barclays Stock will be 
added to an index on which a Fund is based or will be added to the 
portfolio of a Fund which seeks to track an index that includes such 
Stock. These instances will be referred to hereafter as a ``Buy-
up''.\6\ In such instances, acquisitions of Barclays Stock will be 
necessary to bring the Fund's holdings of such Stock either to its 
capitalization-weighted or other specified composition in the index, as 
determined by the independent organization maintaining such index, or 
to the correct weighting for such Stock as determined by the computer 
model which has been used to transform the index. If the Index or 
Model-Driven Fund holds ``plan assets,'' the Applicants represent that 
all acquisitions of Barclays Stock by such Fund will comply with the 
``Buy-up'' conditions of this proposed exemption. These conditions are 
as follows:
---------------------------------------------------------------------------

    \ 6\ The Applicants anticipate that generally acquisitions of 
Barclays Stock by an Index or Model-Driven Fund in a ``Buy-up'' will 
occur within 10 business days from the date of the event which 
causes the particular Fund to require Barclays Stock. Barclays does 
not anticipate that the amounts of Barclays Stock acquired by any 
Fund in a ``Buy-up'' will be significant. In this regard, the 
Department notes that the conditions required herein are designed to 
minimize the market impact of purchases made by the Funds in any 
``Buy-up'' of Barclays Stock.
---------------------------------------------------------------------------

    (A) Purchases will be from or through only one broker or dealer on 
a single trading day;
    (B) Based on the best available information, purchases will not be 
the opening transaction for the trading day;
    (C) Purchases will not be effected in the last half hour before the 
scheduled close of the trading day;
    (D) Purchases will be at a price that is not higher than the lowest 
current independent offer quotation, determined on the basis of 
reasonable inquiry from non-affiliated brokers;
    (E) Purchases will not exceed 15 percent of the daily trading 
volume for the security, as determined by the greater of either (i) the 
trading volume for the security occurring on the applicable exchange or 
automated trading system on the date of the transaction, or (ii) an 
aggregate average daily trading volume for the security occurring on 
the applicable exchange or automated trading system for the previous 
five (5) business days, both based on the best information reasonably 
available at the time of the transaction;
    (F) All purchases and sales of Barclays Stock will occur either (i) 
on a recognized securities exchange (as defined in Section IV(k)), (ii) 
through an automated trading system (as defined in Section IV(j)) 
operated by a broker-dealer that is either registered under the 
Securities Exchange Act of 1934 (the '34 Act) and thereby subject to 
regulation by the SEC, or subject to regulation and supervision by the 
SFA-UK, which provides a mechanism for customer orders to be matched on 
an anonymous basis without the participation of a broker-dealer, or 
(iii) through an automated trading system (as defined in Section IV(j) 
above) that is operated by a recognized securities exchange (as defined 
in Section IV(k)), pursuant to the applicable securities laws which 
provide a mechanism for customer orders to be matched on an anonymous 
basis without the participation of a broker-dealer; and
    (G) If the necessary number of shares of Barclays Stock cannot be 
acquired within 10 business days from the date of the event which 
causes the particular Fund to require Barclays Stock, Barclays

[[Page 13841]]

will appoint a fiduciary which is independent of Barclays to design 
acquisition procedures and monitor Barclays' compliance with such 
procedures.\7\
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    \7\ In this regard, all Funds holding Barclays Stock as of 
December 31, 1995, which have continued to acquire, hold and dispose 
of Barclays Stock in order to track indexes including Barclays Stock 
will not need to have daily transactions involving such Stock 
directed by an independent fiduciary. Barclays states that the 
amount of Barclays Stock involved in such transactions has been and 
continues to be determined by the independent organization which 
created and maintains the relevant index, and all other conditions 
required under this proposed exemption have been met.
---------------------------------------------------------------------------

    The independent fiduciary and its principals will be completely 
independent from the Applicants. The independent fiduciary will also be 
experienced in developing and operating investment strategies for 
individual and collective investment vehicles that track third-party 
indices. Furthermore, the independent fiduciary will not act as the 
broker for any purchases or sales of Barclays Stock and will not 
receive any commissions as a result of this initial acquisition 
program.
    The independent fiduciary will have as its primary goal the 
development of trading procedures that minimize the market impact of 
purchases made pursuant to the initial acquisition program by the 
Funds. The Applicants would expect that, under the trading procedures 
established by the independent fiduciary, the trading activities will 
be conducted in a low-profile, mechanical, non-discretionary manner and 
would involve a number of small purchases over the course of each day, 
randomly timed. The Applicants further expect that such a program will 
allow the Applicants to acquire the necessary shares of Barclays Stock 
for the Funds with minimum impact on the market and in a manner that 
will be in the best interests of any employee benefit plans that 
participate in such Funds.
    The independent fiduciary will also be required to monitor the 
Applicants' compliance with the trading program and procedures 
developed for the initial acquisition of Barclays Stock. During the 
course of any initial acquisition program, the independent fiduciary 
will be required to review the activities weekly to determine 
compliance with the trading procedures and notify the Applicants should 
any non-compliance be detected. Should the trading procedures need 
modifications due to unforeseen events or consequences, the independent 
fiduciary will be required to consult with the Applicants and must 
approve in advance any alteration of the trading procedures.
    7. Subsequent to initial acquisitions necessary to bring a Fund's 
holdings of Barclays Stock to its specified weighting in the index or 
model pursuant to the restrictions described above, all aggregate daily 
purchases of Barclays Stock by the Funds will not exceed on any 
particular day the greater of:
    (i) 15 percent of the average daily trading volume for the Barclays 
Stock occurring on the applicable exchange or automated trading system 
(as described herein) for the previous five (5) business days, or
    (ii) 15 percent of the trading volume for Barclays Stock occurring 
on the applicable exchange or automated trading system (as described 
herein) on the date of the transaction, as determined by the best 
available information for the trades that occurred on such date.
    The Applicants state that recent changes in the London Stock 
Exchange (LSE) have made that exchange more transparent for trading in 
Barclays PLC Stock by the Index and Model-Driven Funds. In late 1997, 
the LSE adopted the Stock Exchange Electronic Trading Service (SETS) 
for all stocks listed in the FTSE Indexes, which include Barclays PLC 
Stock. SETS is an order-driven system on which members post bids and 
offers, permitting trading on an agency basis. Prior to the use of 
SETS, trading on the LSE was a quote-driven principal market.
    The Applicants state further that the advent of SETS has improved 
the availability of volume information about stocks traded on the LSE. 
Currently, all trades in stocks included in the SETS (whether executed 
through SETS or not) are reported to SETS within minutes of the trade 
and this data is available through various data providers, such as 
Reuters. Thus, the Applicants represent that the volume limitations 
imposed under this proposed exemption for transactions by the Funds 
involving Barclays PLC Stock will be effectively monitored by Barclays.
    8. Barclays represents that as of December 31, 1995 until the date 
this proposed exemption is granted, all purchases and sales of Barclays 
PLC Stock by the Funds have occurred and will continue to occur in one 
of the following ways: (i) Through the London Stock Exchange, a 
recognized securities exchange as defined in Section IV(k) above; (ii) 
through an automated trading system (as defined in Section IV(j) above) 
operated by a broker-dealer that is subject to regulation by the SFA-UK 
(pursuant to the applicable securities laws), that provides a mechanism 
for customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer; or (iii) through a direct, arms-
length transaction entered into on a principal basis with a broker-
dealer \8\ that is either registered under the ``34 Act, and thereby 
subject to regulation by the SEC, or subject to regulation and 
supervision by the SFA-UK. In addition, Barclays states that as of the 
date this proposed exemption is granted, all future transactions by the 
Funds involving Barclays Stock which do not occur in connection with a 
Buy-up of such Stock by a Fund, as described above, will be either: (i) 
Entered into on a principal basis with a broker-dealer that is either 
registered under the '34 Act, and thereby subject to regulation by the 
SEC, or subject to regulation and supervision by the SFA-UK; (ii) 
effected on an automated trading system (as defined in Section IV(j) 
above) operated by a broker-dealer subject to regulation by either the 
SEC or SFA-UK, or on an automated trading system operated by a 
recognized securities exchange (as defined in Section IV(k) above) 
which, in either case, provides a mechanism for customer orders to be 
matched on an anonymous basis without the participation of a broker-
dealer; or (iii) effected through a recognized securities exchange (as 
defined in Section IV(k) above) so long as the broker is acting on an 
agency basis.
---------------------------------------------------------------------------

    \ 8\ The Department notes that no relief is being provided 
herein for purchases and sales of securities between a Fund and a 
broker-dealer, acting as a principal, which may be considered 
prohibited transactions as a result of such broker-dealer being a 
party in interest, under section 3(14) of the Act, with respect to 
any plans that are investors in the Fund. However, such transactions 
may be covered by one or more of the Department's existing class 
exemptions. 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 invested in an 
investment fund 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.
---------------------------------------------------------------------------

    9. With respect to all acquisitions and dispositions of Barclays 
PLC Stock by the Funds since December 31, 1995, the Applicants state 
that no such transactions have involved purchases from or sales to 
Barclays (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund. The Applicants represent that all future 
acquisitions and dispositions of Barclays Stock by any Index or Model-
Driven Funds maintained by Barclays will also not involve any purchases 
from or sales to Barclays (including officers, directors, or employees 
thereof), or any party in interest that is

[[Page 13842]]

a fiduciary with discretion to invest plan assets into the Fund.
    10. The Applicants state that no more than five (5) percent of the 
total amount of either Barclays PLC Stock or Barclays PLC Affiliate 
Stock, that is issued and outstanding at any time, will be held in the 
aggregate by Index and Model-Driven Funds managed by Barclays.
    For purposes of the acquisition and holding of Barclays PLC Stock 
by Funds from December 31, 1995 until the date this proposed exemption 
is granted, such Stock will constitute no more than three (3) percent 
of any independent third party index on which the investments of an 
Index or Model-Driven Fund are based. For example, Barclays PLC Stock 
currently represents only 2.03% of the MSCI UK Index and 1.86% of the 
FTSE 100 Index. Although some indexes include Barclays PLC Stock in 
percentages that exceed three (3) percent of the index, Barclays does 
not currently utilize such indices for its Index and Model-Driven Funds 
with ``plan assets'' subject to the Act.
    For purposes of future acquisitions and holdings of Barclays Stock 
by such Funds once this proposed exemption is granted, neither the 
Barclays PLC Stock nor the Barclays PLC Affiliate Stock will constitute 
no more than five (5) percent of any independent third party index on 
which the investments of an Index or Model-Driven Fund are based. In 
this regard, the Applicants have identified at least seven (7) indexes 
which include Barclays Stock where the current approximate 
capitalization weight of the index represented by Barclays Stock 
exceeds three (3) percent. The Applicants request that the proposed 
exemption allow Barclays to design a passive investment strategy for an 
Index or Model-Driven Fund which seeks to track an index that contains 
Barclays Stock, or which transforms such an index in a model-prescribed 
way, as long as the Barclays Stock does not constitute more than five 
(5) percent of the index.\9\
---------------------------------------------------------------------------

    \ 9\ The Applicants have identified certain independent third 
party indexes where the current approximate capitalization weight of 
the index represented by Barclays Stock exceeds five (5) percent. 
However, the Applicants have agreed to limit the prospective relief 
that would be provided by this proposed exemption to Index and 
Model-Driven Funds which track indexes where the specified 
composition of Barclays Stock in the index does not exceed five (5) 
percent of such index.
---------------------------------------------------------------------------

    With respect to an index's specified composition of particular 
stocks in its portfolio, the Applicants state that future Funds may 
track an index where the appropriate weighting for stocks listed in the 
index is not capitalization-weighted. In this regard, the Applicants 
note that the exemption received by WFITC and WFNIA (now BGI and BZW 
Advisors, respectively) from the Department in 1992 (i.e. PTE 92-11) 
covered transactions by index and model-driven funds that were designed 
to replicate the capitalization-weighted composition of an 
independently maintained stock index. However, the Applicants state 
that Funds maintained by BGI and other Affiliates of Barclays PLC may 
track indexes where the selection of a particular stock by the index, 
and the amount of stock to be included in the index, is not established 
based on the market capitalization of the corporation issuing such 
stock. Therefore, since an independent organization may choose to 
create an index where there are other index weightings for stocks 
composing the index, the Applicants request that the proposed exemption 
allow for Barclays Stock to be acquired by a Fund in the amounts which 
are specified by the particular index, subject to the other 
restrictions imposed under this proposed exemption. The Applicants 
represent that, in all instances, acquisitions or dispositions of 
Barclays Stock by a Fund will be for the sole purpose of maintaining 
strict quantitative conformity with the relevant index upon which the 
Fund is based or, in the case of a Model-Driven Fund, a modified 
version of such an index as created by a computer model based on 
prescribed objective criteria and third-party data.
    11. The Applicants state that plan fiduciaries independent of 
Barclays have authorized and will continue to authorize the investment 
of any plan's assets in an Index or Model-Driven Fund which purchases 
and/or holds Barclays Stock.
    With respect to transactions involving Barclays Stock, the 
Applicants state that they may provide portfolio management services 
(i.e., PMF services) to a particular plan (a PMF Plan). In this regard, 
the Applicants may exercise some discretion in allocating and 
reallocating the plan's assets among various collective investment 
funds, including Funds which may hold Barclays Stock. These allocations 
are based on a plan's investment objectives, risk profile and market 
conditions. However, the Applicants make the following representations 
with respect to the purchase, directly or indirectly, of Barclays Stock 
by such plans:
    (a) The Applicants represent that any prohibited transactions which 
might occur as a result of the discretionary allocation and 
reallocation of plan assets among collective investment funds will be 
exempt from the prohibitions of section 406 of the Act by reason of 
section 408(b)(8).\10\
---------------------------------------------------------------------------

    \ 10\ The Department is expressing no opinion in this proposed 
exemption as to whether Applicants' discretionary allocation and 
reallocation services for any collective investment funds maintained 
by the Applicants satisfy the requirements of section 408(b)(8) of 
the Act and is not proposing any exemptive relief beyond that 
offered by section 408(b)(8).
---------------------------------------------------------------------------

    (b) Before Barclays Stock is purchased by a Fund, the appropriate 
independent fiduciary for each PMF Plan which is currently invested or 
could be invested in such Fund will be furnished an explanation and a 
simple form to return to Barclays for the purpose of indicating either 
approval or disapproval of investments in the Fund including Barclays 
Stock, together with a postage-paid return envelope. If the form is not 
returned to the Applicants, the Applicants may obtain a verbal response 
by telephone. If a verbal response is obtained by telephone, the 
Applicants will confirm the fiduciary's decision in writing within five 
(5) business days. In the event no response is obtained from a plan 
fiduciary, the assets of the plan will not be invested in any Fund 
which invests in Barclays Stock and any plan assets currently invested 
in such Fund at that time would be withdrawn.
    (c) Each new management agreement with such a plan will contain 
language specifically approving or disapproving the investment in any 
Fund which holds or might hold Barclays Stock. The fiduciary for each 
such plan will be informed that the existing management agreement could 
be modified in the same way. However, if the fiduciary does not 
specifically approve language in the agreement allowing the investment 
of plan assets in Funds which hold or might hold Barclays Stock, then 
no such investment will be made by the Applicants.
    (d) Each such plan will be informed on a quarterly basis of any 
investment in, or withdrawal from, any Fund holding Barclays Stock. The 
plan would be granted the election to override the Applicants 
discretionary decision to invest in, or withdraw from, such Funds. If 
the plan overrides the Applicants' decision to invest in, or withdraw 
from, the Funds, then the Applicants will carry out the plan's election 
as soon as possible after being notified of such election.
    12. The Applicants will appoint an independent fiduciary which will 
direct the voting of Barclays Stock held by the Funds. Currently, the 
independent fiduciary that directs the voting of Barclays PLC Stock 
held by the Funds is Institutional Shareholders Services, Inc.

[[Page 13843]]

    Barclays states that in all instances the independent fiduciary 
chosen to vote Barclays Stock for the Funds will be a consulting firm 
specializing in corporate governance issues and proxy voting on behalf 
of institutional investors with large equity portfolios. The fiduciary 
will develop and follow standard guidelines and procedures for the 
voting of proxies by institutional fiduciaries. The Applicants will 
provide the independent fiduciary with all necessary information 
regarding the Funds that hold Barclays Stock, the amount of Barclays 
Stock held by the Funds on the record date for shareholder meetings of 
the Applicants, and all proxy and consent materials with respect to 
Barclays Stock. The independent fiduciary will maintain records with 
respect to its activities as an independent fiduciary on behalf of the 
Funds, including the number of shares of Barclays Stock voted, the 
manner in which they were voted, and the rationale for the vote if the 
vote was not consistent with the independent fiduciary's procedures and 
current voting guidelines in effect at the time of the vote. The 
independent fiduciary will supply the Applicants with such information 
after each shareholder meeting. The independent fiduciary will be 
required to acknowledge that it will be acting as a fiduciary with 
respect to the plans which invest in the Funds which own Barclays 
Stock, when voting such stock.
    16. In summary, with respect to all acquisitions, holdings, and 
dispositions of Barclays PLC Stock by the Funds since December 31, 
1995, the Applicants represent that such transactions meet the criteria 
of section 408(a) of the Act for the following reasons:
    (a) Each Index or Model-Driven Fund involved is based on an Index, 
as defined in Section IV(c) above;
    (b) The acquisition, holding and disposition of the Barclays PLC 
Stock by the Index or Model-Driven Fund is for the sole purpose of 
maintaining strict quantitative conformity with the relevant index upon 
which the Fund is based, and does not involve any agreement, 
arrangement or understanding regarding the design or operation of the 
Fund acquiring the Barclays PLC Stock which is intended to benefit 
Barclays or any party in which Barclays may have an interest;
    (c) All aggregate daily purchases of Barclays PLC Stock by the 
Funds do not exceed, on any particular day, 15 percent of the average 
daily trading volume for such Stock occurring on the applicable 
exchange or automated trading system, as determined by the best 
available information for the trades occurring on that date;
    (d) All purchases and sales of Barclays PLC Stock occur either (i) 
on the London Stock Exchange, a recognized securities exchange as 
defined herein, (ii) through an automated trading system (as defined 
herein) operated by a broker-dealer that is subject to regulation by 
the SFA-UK (pursuant to the applicable securities laws) that provides a 
mechanism for customer orders to be matched on an anonymous basis 
without the participation of a broker-dealer, or (iii) in a direct, 
arms-length transaction entered into on a principal basis with a 
broker-dealer, in the ordinary course of its business, where such 
broker-dealer is independent of Barclays and is either registered under 
the '34 Act, and thereby subject to regulation by the SEC, or subject 
to regulation and supervision by the SFA-UK;
    (e) No transactions by a Fund involve purchases from or sales to 
Barclays (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund;
    (f) No more than five (5) percent of the total amount of Barclays 
PLC Stock issued and outstanding at any time is held in the aggregate 
by Index and Model-Driven Funds managed by Barclays;
    (g) Barclays PLC Stock constitutes no more than three (3) percent 
of any independent third party index on which the investments of an 
Index or Model-Driven Fund are based;
    (h) A plan fiduciary independent of Barclays authorizes the 
investment of such plan's assets in an Index or Model-Driven Fund which 
purchases and/or holds Barclays PLC Stock; and
    (i) A fiduciary independent of Barclays (i.e. Institutional 
Shareholders Services, Inc.) directs the voting of the Barclays PLC 
Stock held by an Index or Model-Driven Fund on any matter in which 
shareholders of Barclays PLC Stock are required or permitted to vote.
    With respect to all acquisitions, holdings, and dispositions of 
Barclays PLC Stock or Barclays PLC Affiliate Stock by the Funds after 
this proposed exemption is granted, the Applicants represent that such 
transactions will meet the criteria of section 408(a) of the Act for 
the following reasons:
    (a) Each Index or Model-Driven Fund involved will be based on an 
Index, as defined in Section IV(c) above;
    (b) The acquisition or disposition of Barclays Stock will be for 
the sole purpose of maintaining strict quantitative conformity with the 
relevant Index upon which the Index or Model-Driven Fund is based, and 
will not involve any agreement, arrangement or understanding regarding 
the design or operation of the Fund acquiring the Barclays Stock which 
is intended to benefit Barclays or any party in which Barclays may have 
an interest;
    (c) Whenever Barclays Stock is initially added to an index on which 
a Fund is based, or initially added to the portfolio of a Fund (i.e., a 
Buy-up), all acquisitions of Barclays Stock necessary to bring the 
Fund's holdings of such Stock either to its capitalization-weighted or 
other specified composition in the relevant index, as determined by the 
independent organization maintaining such index, or to its correct 
weighting as determined by the computer model which has been used to 
transform the index, will be restricted by conditions which are 
designed to prevent possible market price manipulations;
    (d) Subsequent to acquisitions necessary to bring a Fund's holdings 
of Barclays Stock to its specified weighting in the index or model, 
pursuant to the restrictions noted in paragraph (c) above, all 
aggregate daily purchases of Barclays Stock by the Funds will not 
exceed, on any particular day, 15 percent of the average daily trading 
volume for such Stock occurring on the applicable exchange or automated 
trading system, as determined by the best available information for the 
trades that occurred on such date;
    (e) All transactions in Barclays Stock, other than acquisitions of 
such Stock in a Buy-up described in paragraph (c) above, will be 
either: (i) Entered into on a principal basis with a broker-dealer, in 
the ordinary course of its business, where such broker-dealer is 
independent of Barclays and is either registered under the '34 Act, and 
thereby subject to regulation by the SEC, or subject to regulation and 
supervision by the SFA-UK, (ii) effected on an automated trading system 
operated by a broker-dealer subject to regulation by either the SEC or 
SFA-UK, or by a recognized securities exchange which, in either case, 
provides a mechanism for customer orders to be matched on an anonymous 
basis without the participation of a broker-dealer, or (iii) effected 
through a recognized securities exchange (as defined herein) so long as 
the broker is acting on an agency basis.
    (f) No transactions by a Fund will involve purchases from or sales 
to Barclays (including officers, directors, or employees thereof), or 
any party in interest that is a fiduciary with discretion to invest 
plan assets into the Fund;

[[Page 13844]]

    (g) No more than five (5) percent of the total amount of either 
Barclays PLC Stock or Barclays PLC Affiliate Stock, that is issued and 
outstanding at any time, will be held in the aggregate by Index and 
Model-Driven Funds managed by Barclays;
    (h) Barclays Stock will constitute no more than five (5) percent of 
any independent third party index on which the investments of an Index 
or Model-Driven Fund are based;
    (i) A plan fiduciary independent of Barclays will authorize the 
investment of such plan's assets in an Index or Model-Driven Fund which 
purchases and/or holds Barclays Stock pursuant to the procedures 
described herein, including those which relate to portfolio management 
services provided to certain plans (see Paragraph 11 of the Summary of 
Facts and Representations above); and
    (k) A fiduciary independent of Barclays will direct the voting of 
the Barclays Stock held by an Index or Model-Driven Fund on any matter 
in which shareholders of Barclays Stock are required or permitted to 
vote.

NOTICE TO INTERESTED PERSONS: Notice of the proposed exemption should 
be mailed by first class mail to interested persons, including the 
appropriate fiduciaries for employee benefit plans currently invested 
in the Index and/or Model-Driven Funds that acquire and hold Barclays 
Stock. The notice should contain a copy of the proposed exemption as 
published in the Federal Register and an explanation of the rights of 
interested parties to comment on or request a hearing regarding the 
proposed exemption. All notices should be sent to interested persons 
within 15 days of the publication of this proposed exemption in the 
Federal Register. Any written comments and/or requests for a hearing 
must be received by the Department from interested persons within 45 
days of the publication of this proposed exemption in the Federal 
Register.
    In addition, Barclays shall provide a copy of the proposed 
exemption and, if granted, a copy of the final exemption upon request 
to all ERISA-covered plans that invest in any Index or Model-Driven 
Fund that will include Barclays PLC Stock or Barclays PLC Affiliate 
Stock in its portfolio after the date the final exemption is published 
in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

BOSC, Inc. (BOSC)

Located in Tulsa, Oklahoma
[Application No. D-10834]

Proposed Exemption

I. Transactions

    A. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by section 4975(a) and (b) of the Code by reason of 
section 4975(c)(1)(A) through (D) of the Code shall not apply to the 
following transactions involving trusts and certificates evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and an employee benefit plan when the sponsor, 
servicer, trustee or insurer of a trust, the underwriter of the 
certificates representing an interest in the trust, or an obligor is a 
party in interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates; 
and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.A.(1) or (2).
    Notwithstanding the foregoing, section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 for the acquisition or holding of a certificate on behalf of an 
Excluded Plan by any person who has discretionary authority or renders 
investment advice with respect to the assets of that Excluded Plan.\11\
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    \11\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
---------------------------------------------------------------------------

    B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act, 
and the taxes imposed by section 4975(a) and (b) of the Code by reason 
of section 4975(c)(1)(E) of the Code, shall not apply to:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and a plan when the person who has discretionary 
authority or renders investment advice with respect to the investment 
of plan assets in the certificates is (a) an obligor with respect to 5 
percent or less of the fair market value of obligations or receivables 
contained in the trust, or (b) an affiliate of a person described in 
(a); if:
    (i) The plan is not an Excluded Plan;
    (ii) solely in the case of an acquisition of certificates in 
connection with the initial issuance of the certificates, at least 50 
percent of each class of certificates in which plans have invested is 
acquired by persons independent of the members of the Restricted Group 
and at least 50 percent of the aggregate interest in the trust is 
acquired by persons independent of the Restricted Group;
    (iii) a plan's investment in each class of certificates does not 
exceed 25 percent of all of the certificates of that class outstanding 
at the time of the acquisition; and
    (iv) immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in certificates representing an interest in a trust containing 
assets sold or serviced by the same entity.\12\ For purposes of this 
paragraph B.(1)(iv) only, an entity will not be considered to service 
assets contained in a trust if it is merely a subservicer of that 
trust;
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    \12\ For purposes of this proposed exemption, each plan 
participating in a commingled fund (such as a bank collective trust 
fund or insurance company pooled separate account) shall be 
considered to own the same proportionate undivided interest in each 
asset of the commingled fund as its proportionate interest in the 
total assets of the commingled fund as calculated on the most recent 
preceding valuation date of the fund.
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    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that the conditions set forth in paragraphs B.(1)(i), (iii) 
and (iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.B.(1) or (2).
    C. The restrictions of sections 406(a), 406(b) and 407(a) of the 
Act, and the taxes imposed by section 4975(a) and (b) of the Code by 
reason of section 4975(c) of the Code, shall not apply to transactions 
in connection with the servicing, management and operation of a trust, 
provided:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing arrangement; and
    (2) The pooling and servicing agreement is provided to, or 
described in all material respects in, the prospectus or private 
placement memorandum provided to investing plans before they purchase 
certificates issued by the trust.\13\
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    \13\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.

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[[Page 13845]]

    Notwithstanding the foregoing, section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act, or from 
the taxes imposed by reason of section 4975(c) of the Code, for the 
receipt of a fee by a servicer of the trust from a person other than 
the trustee or sponsor, unless such fee constitutes a ``qualified 
administrative fee'' as defined in section III.S.
    D. The restrictions of sections 406(a) and 407(a) of the Act, and 
the taxes imposed by sections 4975(a) and (b) of the Code by reason of 
sections 4975(c)(1)(A) through (D) of the Code, shall not apply to any 
transactions to which those restrictions or taxes would otherwise apply 
merely because a person is deemed to be a party in interest or 
disqualified person (including a fiduciary) with respect to a plan by 
virtue of providing services to the plan (or by virtue of having a 
relationship to such service provider described in section 3(14)(F), 
(G), (H) or (I) of the Act or section 4975(e)(2)(F), (G), (H) or (I) of 
the Code), solely because of the plan's ownership of certificates.

II. General Conditions

    A. The relief provided under Part I is available only if the 
following conditions are met:
    (1) The acquisition of certificates by a plan is on terms 
(including the certificate price) that are at least as favorable to the 
plan as they would be in an arm's-length transaction with an unrelated 
party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating 
from a rating agency (as defined in section III.W.) at the time of such 
acquisition that is in one of the three highest generic rating 
categories;
    (4) The trustee is not an affiliate of any other member of the 
Restricted Group. However, the trustee shall not be considered to be an 
affiliate of a servicer solely because the trustee has succeeded to the 
rights and responsibilities of the servicer pursuant to the terms of a 
pooling and servicing agreement providing for such succession upon the 
occurrence of one or more events of default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the sum of all payments made 
to and retained by the sponsor pursuant to the assignment of 
obligations (or interests therein) to the trust represents not more 
than the fair market value of such obligations (or interests); and the 
sum of all payments made to and retained by the servicer represents not 
more than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith;
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933; 
and
    (7) In the event that the obligations used to fund a trust have not 
all been transferred to the trust on the closing date, additional 
obligations as specified in subsection III.B.(1) may be transferred to 
the trust during the pre-funding period (as defined in section III.BB.) 
in exchange for amounts credited to the pre-funding account (as defined 
in section III.Z.), provided that:
    (a) The pre-funding limit (as defined in section III.AA.) is not 
exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for eligibility as those of the original obligations used to 
create the trust corpus (as described in the prospectus or private 
placement memorandum and/or pooling and servicing agreement for such 
certificates), which terms and conditions have been approved by a 
rating agency.
    Notwithstanding the foregoing, the terms and conditions for 
determining the eligibility of an obligation may be changed if such 
changes receive prior approval either by a majority of the outstanding 
certificateholders or by a rating agency;
    (c) The transfer of such additional obligations to the trust during 
the pre-funding period does not result in the certificates receiving a 
lower credit rating from a rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the trust at the 
end of the pre-funding period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were 
transferred to the trust on the closing date;
    (e) In order to ensure that the characteristics of the receivables 
actually acquired during the pre-funding period are substantially 
similar to those which were acquired as of the closing date, the 
characteristics of the additional obligations will be either monitored 
by a credit support provider or other insurance provider which is 
independent of the sponsor, or an independent accountant retained by 
the sponsor will provide the sponsor with a letter (with copies 
provided to the rating agency, the underwriter and the trustees) 
stating whether or not the characteristics of the additional 
obligations conform to the characteristics of such obligations 
described in the prospectus, private placement memorandum and/or 
pooling and servicing agreement. In preparing such letter, the 
independent accountant will use the same type of procedures as were 
applicable to the obligations which were transferred as of the closing 
date;
    (f) The pre-funding period shall be described in the prospectus or 
private placement memorandum provided to investing plans; and
    (g) The trustee of the trust (or any agent with which the trustee 
contracts to provide trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, will enforce all the rights created in favor 
of certificateholders of such trust, including employee benefit plans 
subject to the Act.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, 
nor any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Part I, if the provision of subsection II.A.(6) above is 
not satisfied with respect to acquisition or holding by a plan of such 
certificates, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of certificates, the trustee obtains a representation 
from each initial purchaser which is a plan that it is in compliance 
with such condition, and obtains a covenant from each initial purchaser 
to the effect that, so long as such initial purchaser (or any 
transferee of such initial purchaser's certificates) is required to 
obtain from its transferee a representation regarding compliance

[[Page 13846]]

with the Securities Act of 1933, any such transferees will be required 
to make a written representation regarding compliance with the 
condition set forth in subsection II.A.(6) above.

III. Definitions

    For purposes of this proposed exemption:
    A. Certificate means:
    (1) A certificate--
    (a) That represents a beneficial ownership interest in the assets 
of a trust; and
    (b) That entitles the holder to pass-through payments of principal, 
interest, and/or other payments made with respect to the assets of such 
trust; or
    (2) A certificate denominated as a debt instrument--
    (a) That represents an interest in a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
section 860L, respectively, of the Internal Revenue Code of 1986; and
    (b) That is issued by, and is an obligation of, a trust; with 
respect to certificates defined in (1) and (2) above for which BOSC or 
any of its affiliates is either (i) the sole underwriter or the manager 
or co-manager of the underwriting syndicate, or (ii) a selling or 
placement agent.
    For purposes of this proposed exemption, references to 
``certificates representing an interest in a trust'' include 
certificates denominated as debt which are issued by a trust.
    B. Trust means an investment pool, the corpus of which is held in 
trust and consists solely of:
    (1) (a) Secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association); and/or
    (b) Secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, qualified equipment notes secured by 
leases, as defined in section III.T); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and commercial real property (including obligations secured 
by leasehold interests on commercial real property); and/or
    (d) Obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or qualified 
motor vehicle leases (as defined in section III.U); and/or
    (e) ``Guaranteed governmental mortgage pool certificates,'' as 
defined in 29 CFR 2510.3-101(i)(2); and/or
    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this section B.(1);
    (2) Property which had secured any of the obligations described in 
subsection B.(1);
    (3) (a) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to made 
to certificateholders; and/or
    (b) Cash or investments made therewith which are credited to an 
account to provide payments to certificateholders pursuant to any yield 
supplement agreement or similar yield maintenance arrangement to 
supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1) held in the trust, provided that such 
arrangements do not involve swap agreements or other notional principal 
contracts; and/or
    (c) Cash transferred to the trust on the closing date and permitted 
investments made therewith which:
    (i) Are credited to a pre-funding account established to purchase 
additional obligations with respect to which the conditions set forth 
in clauses (a)-(g) of subsection II.A.(7) are met and/or;
    (ii) Are credited to a capitalized interest account (as defined in 
section III.X.); and
    (iii) Are held in the trust for a period ending no later than the 
first distribution date to certificateholders occurring after the end 
of the pre-funding period.
    For purposes of this clause (c) of subsection III.B.(3), the term 
``permitted investments'' means investments which are either: (i) 
Direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by the United States, or any agency 
or instrumentality thereof, provided that such obligations are backed 
by the full faith and credit of the United States or (ii) have been 
rated (or the obligor has been rated) in one of the three highest 
generic rating categories by a rating agency; are described in the 
pooling and servicing agreement; and are permitted by the rating 
agency; and
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship, yield supplement agreements 
described in clause (b) of subsection III.B.(3) and other credit 
support arrangements with respect to any obligations described in 
subsection III.B.(1).
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) The investment pool consists only of 
assets of the type described in clauses (a) through (f) of subsection 
III.B.(1) which have been included in other investment pools, (ii) 
certificates evidencing interests in such other investment pools have 
been rated in one of the three highest generic rating categories by a 
rating agency for at least one year prior to the plan's acquisition of 
certificates pursuant to this proposed exemption, and (iii) 
certificates evidencing interests in such other investment pools have 
been purchased by investors other than plans for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
proposed exemption.
    C. Underwriter means:
    (1) BOSC;
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
BOSC; or
    (3) Any member of an underwriting syndicate or selling group of 
which BOSC or a person described in (2) is a manager or co-manager with 
respect to the certificates.
    D. Sponsor means the entity that organizes a trust by depositing 
obligations therein in exchange for certificates.
    E. Master Servicer means the entity that is a party to the pooling 
and servicing agreement relating to trust assets and is fully 
responsible for servicing, directly or through subservicers, the assets 
of the trust.
    F. Subservicer means an entity which, under the supervision of and 
on behalf of the master servicer, services obligations contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services obligations contained 
in the trust, including the master servicer and any subservicer.
    H. Trustee means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, or provider of other 
credit support for, a trust. Notwithstanding the foregoing, a person is 
not an insurer solely because it holds securities representing an 
interest in a trust which are of a class subordinated to certificates 
representing an interest in the same trust.
    J. Obligor means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the

[[Page 13847]]

trust. Where a trust contains qualified motor vehicle leases or 
qualified equipment notes secured by leases, ``obligor'' shall also 
include any owner of property subject to any lease included in the 
trust, or subject to any lease securing an obligation included in the 
trust.
    K. Excluded Plan means any plan with respect to which any member of 
the Restricted Group is a ``plan sponsor'' within the meaning of 
section 3(16)(B) of the Act.
    L. Restricted Group with respect to a class of certificates means:
    (1) each underwriter;
    (2) each insurer;
    (3) the sponsor;
    (4) the trustee;
    (5) each servicer;
    (6) any obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust; or
    (7) any affiliate of a person described in (1)-(6) above.
    M. Affiliate of another person includes:
    (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, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) Such person is not an affiliate of that other person; and
    (2) The other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. Sale includes the entrance into a forward delivery commitment 
(as defined in section Q below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's-length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this proposed 
exemption (if granted) applicable to sales are met.
    Q. Forward delivery commitment means a contract for the purchase or 
sale of one or more certificates to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the certificates) and 
optional contracts (which give one party the right but not the 
obligation to deliver certificates to, or demand delivery of 
certificates from, the other party).
    R. Reasonable compensation has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. Qualified Administrative Fee means a fee which meets the 
following criteria:
    (1) the fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations;
    (2) the servicer may not charge the fee absent the act or failure 
to act referred to in (1);
    (3) the ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the pooling and servicing agreement; and
    (4) the amount paid to investors in the trust will not be reduced 
by the amount of any such fee waived by the servicer
    T. Qualified Equipment Note Secured by a Lease means an equipment 
note:
    (1) which is secured by equipment which is leased;
    (2) which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (3) with respect to which the trust's security interest in the 
equipment is at least as protective of the rights of the trust as would 
be the case if the equipment note were secured only by the equipment 
and not the lease.
    U. Qualified Motor Vehicle Lease means a lease of a motor vehicle 
where:
    (1) the trust owns or holds a security interest in the lease;
    (2) the trust owns or holds a security interest in the leased motor 
vehicle; and
    (3) the trust's security interest in the leased motor vehicle is at 
least as protective of the trust's rights as would be the case if the 
trust consisted of motor vehicle installment loan contracts.
    V. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust. In the case of certificates which are denominated as debt 
instruments, ``Pooling and Servicing Agreement'' also includes the 
indenture entered into by the trustee of the trust issuing such 
certificates and the indenture trustee.
    W. Rating Agency means Standard & Poor's Structured Rating Group 
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps 
Credit Rating Co. (D & P) or Fitch IBCA, Inc. (Fitch), or their 
successors.
    X. Capitalized Interest Account means a trust account: (i) which is 
established to compensate certificateholders for shortfalls, if any, 
between investment earnings on the pre-funding account and the pass-
through rate payable under the certificates; and (ii) which meets the 
requirements of clause (c) of subsection III.B.(3).
    Y. Closing Date means the date the trust is formed, the 
certificates are first issued and the trust's assets (other than those 
additional obligations which are to be funded from the pre-funding 
account pursuant to subsection II.A.(7)) are transferred to the trust.
    Z. Pre-Funding Account means a trust account: (i) Which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and 
(ii) which meets the requirements of clause (c) of subsection 
III.B.(3).
    AA. Pre-Funding Limit means a percentage or ratio of the amount 
allocated to the pre-funding account, as compared to the total 
principal amount of the certificates being offered which is less than 
or equal to 25 percent.
    BB. Pre-Funding Period means the period commencing on the closing 
date and ending no later than the earliest to occur of: (i) the date 
the amount on deposit in the pre-funding account is less than the 
minimum dollar amount specified in the pooling and servicing agreement; 
(ii) the date on which an event of default occurs under the pooling and 
servicing agreement; or (iii) the date which is the later of three 
months or 90 days after the closing date.
    CC. BOSC means BOSC, Inc. an Oklahoma corporation, and its 
affiliates.
    The Department notes that this proposed exemption is included 
within the meaning of the term ``Underwriter Exemption'' as it is 
defined in section V(h) of Prohibited Transaction Exemption 95-60 (60 
FR 35925, July 12, 1995), the Class Exemption for Certain Transactions 
Involving Insurance Company General Accounts (see 60 FR at 35932).

Summary Of Facts and Representations

    1. BOSC is a broker-dealer registered with the Securities and 
Exchange Commission (SEC) and is a member of

[[Page 13848]]

the National Association of Securities Dealers, Inc. As of June 30, 
1999, it had total assets of $15.1 million.
    BOSC is a wholly-owned subsidiary of BOK Financial Corporation (BOK 
Financial), a bank holding with its principal offices located in Tulsa, 
Oklahoma. BOSC was established as a broker-dealer subsidiary of BOK 
Financial pursuant to an order of the Board of Governors of the U.S. 
Federal Reserve System (the Federal Reserve Board) effective April 29, 
1997 (the Tier 1 Order). The Federal Reserve Board regulates BOK 
Financial as a bank holding company and restricts activities of BOSC 
and its affiliates under the Glass-Steagall Act.
    Under the Tier 1 Order, BOSC is authorized to engage, subject to 
certain prudential limitations established by the Federal Reserve 
Board, in underwriting and dealing in certain mortgage-related 
securities, municipal revenue bonds, commercial paper and consumer 
receivables-related securities (Tier 1 Activities). In addition, BOSC 
is authorized to act as agent in the private placement of all types of 
securities, including providing related advisory services, and to buy 
and sell securities on the order of investors. The Tier 1 Order is 
subject to the condition that BOSC does not derive more than a limited 
percentage of its total gross revenues over any two-year period from 
underwriting and dealing in certain categories of securities, including 
asset-backed securities of the type described herein.
    BOSC has also been authorized by the Federal Reserve Board to 
engage, subject to certain prudential limitations established by the 
Federal Reserve Board dated December 2, 1998, in certain additional 
securities activities, including underwriting and dealing in corporate 
debt and equity securities (Tier 2 Activities).
    BOSC has been involved in the structuring and placement of asset-
backed securities transactions since July 1998. In March, 1999, BOSC 
has served as lead underwriter in public offerings of trust 
certificates of the BOK Auto Grantor Trust 1999-A. BOSC is developing 
additional offerings of asset backed securities.
    BOK Financial, the parent of BOSC, is the largest financial 
institution headquatertered in Oklahoma, with total assets of 
approximately $8.2 billion as of June 30, 1999 and approximately $15.5 
billion in assets under management and administration. BOK Financial's 
subsidiaries include Bank of Oklahoma, National Association (the 
largest national bank headquartered in Oklahoma), Bank of Texas, 
National Association (headquartered in the Dallas-Ft. Worth 
Metropolitan Area), Bank of Arkansas, National Association 
(headquartered in Fayetteville, Arkansas), and Bank of Albuquerque, 
National Association (headquartered in Albuquerque, New Mexico). BOK 
Financial, through its subsidiary banks, provides a full range of 
consumer and commercial banking services, trust services, mortgage 
origination and servicing, and investment advisory services. The Bank 
of Oklahoma Trust Division serves as the investment advisor for the 
American Performance Funds Group of Mutual Funds.

Trust Assets

    2. BOSC seeks exemptive relief to permit plans to invest in pass-
through certificates representing undivided interests in the following 
categories of trusts: (1) Single and multi-family residential or 
commercial mortgage investment trusts; \14\ (2) motor vehicle 
receivable investment trusts; (3) consumer or commercial receivables 
investment trusts; and (4) guaranteed governmental mortgage pool 
certificate investment trusts.\15\
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    \14\ The Department notes that PTE 83-1 [48 FR 895, January 7, 
1983], a class exemption for mortgage pool investment trusts, would 
generally apply to trusts containing single-family residential 
mortgages, provided that the applicable conditions of PTE 83-l are 
met. BOSC requests relief for single-family residential mortgages in 
this exemption because it would prefer one exemption for all trusts 
of similar structure. However, BOSC has stated that it may still 
avail itself of the exemptive relief provided by PTE 83-1.
    \15\ Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Government National Mortgage 
Association (GNMA), the Federal Home Loan Mortgage Corporation 
(FHLMC), or the Federal National Mortgage Association (FNMA). The 
Department's regulation relating to the definition of ``plan 
assets'' (29 CFR 2510.3-101(i)) provides that where a plan acquires 
a guaranteed governmental mortgage pool certificate, the plan's 
assets include the certificate and all of its rights with respect to 
such certificate under applicable law, but do not, solely by reason 
of the plan's holding of such certificate, include any of the 
mortgages underlying such certificate. The applicant is requesting 
exemptive relief for trusts containing guaranteed governmental 
mortgage pool certificates because the certificates in the trusts 
may be plan assets.
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    3. Commercial mortgage investment trusts may include mortgages on 
ground leases of real property. Commercial mort gages are frequently 
secured by ground leases on the underlying property, rather than by fee 
simple interests. The separation of the fee simple interest and the 
ground lease interest is generally done for tax reasons. Properly 
structured, the pledge of the ground lease to secure a mortgage 
provides a lender with the same level of security as would be provided 
by a pledge of the related fee simple interest. The terms of the ground 
leases pledged to secure leasehold mortgages will in all cases be at 
least ten years longer than the term of such mortgages.\16\
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    \16\ Trust assets may also include obligations that are secured 
by leasehold interests on residential real property. See PTE 90-32 
involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6, 
1990 at 23150).
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Trust Structure

    4. Each trust is established under a pooling and servicing 
agreement between a sponsor, a servicer and a trustee.\17\ The sponsor 
or servicer of a trust selects assets to be included in the trust. \18\ 
These assets are receivables which may have been originated by a 
sponsor or servicer of the trust, an affiliate of the sponsor or 
servicer, or by an unrelated lender and subsequently acquired by the 
trust sponsor or servicer.\19\
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    \17\ The Department is of the view that the term ``trust'' 
includes a trust: (a) The assets of which, although all specifically 
identified by the sponsor or the originator as of the closing date, 
are not all transferred to the trust on the closing date for 
administrative or other reasons but will be transferred to the trust 
shortly after the closing date, or (b) with respect to which 
certificates are not purchased by plans until after the end of the 
pre-funding period at which time all receivables are contained in 
the trust.
    \18\ It is the Department's view that the definition of 
``trust'' contained in section III.B. includes a two-tier structure 
under which certificates issued by the first trust, which contains a 
pool of receivables described above, are transferred to a second 
trust which issues securities that are sold to plans. However, the 
Department is of the further view that, since the exemption provides 
relief for the direct or indirect acquisition or disposition of 
certificates that are not subordinated, no relief would be available 
if the certificates held by the second trust were subordinated to 
the rights and interests evidenced by other certificates issued by 
the first trust.
    \19\ It is the view of the Department that section III.B.(4) 
includes within the definition of the term ``trust'' rights under 
any yield supplement or similar arrangement which obligates the 
sponsor or master servicer, or another party specified in the 
relevant pooling and servicing agreement, to supplement the interest 
rates otherwise payable on the obligations described in section 
III.B.(1), in accordance with the terms of a yield supplement 
arrangement described in the pooling and servicing agreement, 
provided that such arrangements do not involve swap agreements or 
other notional principal contracts.
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    Typically, on or prior to the closing date, the sponsor acquires 
legal title to all assets selected for the trust, establishes the trust 
and designates an independent entity as trustee. On the closing date, 
the sponsor conveys to the trust legal title to the assets, and the 
trustee issues certificates representing fractional undivided interests 
in the trust assets. Typically, all receivables to be held in the trust 
are transferred as of the closing date, but in some transactions, as 
described more fully below, a limited percentage of the receivables to 
be held in the trust may

[[Page 13849]]

be transferred during a limited period of time following the closing 
date, through the use of a pre-funding account.
    BOSC, alone or together with other broker-dealers, acts as 
underwriter or placement agent with respect to the sale of the 
certificates. All of the public offerings of certificates presently 
contemplated are to be underwritten by BOSC on a firm commitment basis. 
In addition, BOSC anticipates that it may privately place certificates 
on both a firm commitment and an agency basis. BOSC may also act as the 
lead underwriter for a syndicate of securities underwriters.
    Certificateholders will be entitled to receive distributions of 
principal and/or interest, or lease payments due on the receivables, 
adjusted, in the case of payments of interest, to a specified rate--the 
pass-through rate--which may be fixed or variable. These distributions 
will be made monthly, quarterly, semi-annually, or at such other 
intervals and dates as specified in the related prospectus or private 
placement memorandum.
    When installments or payments are made on a semi-annual basis, 
funds are not permitted to be commingled with the servicer's assets for 
longer than would be permitted for a monthly-pay security. A segregated 
account is established in the name of the trustee (on behalf of 
certificateholders) to hold funds received between distribution dates. 
The account is under the sole control of the trustee, who invests the 
account's assets in short-term securities which have received a rating 
comparable to the rating assigned to the certificates. In some cases, 
the servicer may be permitted to make a single deposit into the account 
once a month. When the servicer makes such monthly deposits, payments 
received from obligors by the servicer may be commingled with the 
servicer's assets during the month prior to deposit. Usually, the 
period of time between receipt of funds by the servicer and deposit of 
these funds in a segregated account does not exceed one month. 
Furthermore, in those cases where distributions are made semi-annually, 
the servicer will furnish a report on the operation of the trust to the 
trustee on a monthly basis. At or about the time this report is 
delivered to the trustee, it will be made available to 
certificateholders and delivered to or made available to each rating 
agency that has rated the certificates.
    5. Some of the certificates will be multi-class certificates. BOSC 
requests exemptive relief for two types of multi-class certificates: 
``strip'' certificates and ``fast-pay/slow-pay'' certificates. Strip 
certificates are a type of security in which the stream of interest 
payments on receivables is split from the flow of principal payments 
and separate classes of certificates are established, each representing 
rights to disproportionate payments of principal and interest.\20\
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    \20\ It is the Department's understanding that where a plan 
invests in REMIC ``residual'' interest certificates to which this 
exemption applies, some of the income received by the plan as a 
result of such investment may be considered unrelated business 
taxable income to the plan, which is subject to income tax under the 
Code. The Department emphasizes that the prudence requirement of 
section 404(a)(l)(B) of the Act would require plan fiduciaries to 
carefully consider this and other tax consequences prior to causing 
plan assets to be invested in certificates pursuant to this proposed 
exemption.
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    ``Fast-pay/slow-pay'' certificates involve the issuance of classes 
of certificates having different stated maturities or the same 
maturities with different payment schedules. Interest and/or principal 
payments received on the underlying receivables are distributed first 
to the class of certificates having the earliest stated maturity of 
principal, and/or earlier payment schedule, and only when that class of 
certificates has been paid in full (or has received a specified amount) 
will distributions be made with respect to the second class of 
certificates. Distributions on certificates having later stated 
maturities will proceed in like manner until all the certificateholders 
have been paid in full. The only difference between this multi-class 
pass-through arrangement and a single-class pass-through arrangement is 
the order in which distributions are made to certificateholders. In 
each case, certificateholders will have a beneficial ownership interest 
in the underlying assets. In neither case will the rights of a plan 
purchasing a certificate be subordinated to the rights of another 
certificateholder in the event of default on any of the underlying 
obligations. In particular, if the amount available for distribution to 
certificateholders is less than the amount required to be so 
distributed, all senior certificateholders then entitled to receive 
distributions will share in the amount distributed on a pro rata 
basis.\21\
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    \21\ If a trust issues subordinated certificates, holders of 
such subordinated certificates may not share in the amount 
distributed on a pro rata basis with the senior certificateholders. 
The Department notes that the proposed exemption does not provide 
relief for plan investment in such subordinated certificates.
---------------------------------------------------------------------------

    6. The trust will be maintained as an essentially passive entity. 
Therefore, both the sponsor's discretion and the servicer's discretion 
with respect to assets included in a trust are severely limited. 
Pooling and servicing agreements provide for the substitution of 
receivables by the sponsor only in the event of defects in 
documentation discovered within a short time after the issuance of 
trust certificates (within 120 days, except in the case of obligations 
having an original term of 30 years, in which case the period will not 
exceed two years). Any receivable so substituted is required to have 
characteristics substantially similar to the replaced receivable and 
will be at least as creditworthy as the replaced receivable.
    In some cases, the affected receivable would be repurchased, with 
the purchase price applied as a payment on the affected receivable and 
passed through to certificateholders.
    In some cases the trust will be maintained as a Financial Asset 
Securitization Investment Trust (``FASIT''), a statutory entity created 
by the Small Business Job Protection Act of 1996, adding sections 860H, 
860J, 860K and 860L to the Code. In general, a FASIT is designed to 
facilitate the securitization of debt obligations, such as credit card 
receivables, home equity loans, and auto loans, and thus, allows 
certain features such as revolving pools of assets, trusts containing 
unsecured receivables and certain hedging types of investments. A FASIT 
is not a taxable entity and debt instruments issued by such trusts, 
which might otherwise be recharacterized as equity, will be treated as 
debt in the hands of the holder for tax purposes. However, a trust 
which is the subject of the proposed exemption will be maintained as a 
FASIT only where the assets held by the FASIT will be comprised of 
secured debt; revolving pools of assets or hedging investments will not 
be allowed unless specifically authorized by the exemption, if granted, 
so that a trust maintained as a FASIT will be maintained as an 
essentially passive entity.

Trust Structure With Pre-Funding Account

Pre-Funding Accounts

    7. As described briefly above, some transactions may be structured 
using a pre-funding account or a capitalized interest account. If pre-
funding is used, cash sufficient to purchase the receivables to be 
transferred after the closing date will be transferred to the trust by 
the sponsor or originator on the closing date. During the pre-funding 
period, such cash and temporary investments, if any, made therewith 
will be held in a pre-funding account and used to purchase the 
additional receivables, the characteristics of which will be 
substantially similar to the

[[Page 13850]]

characteristics of the receivables transferred to the trust on the 
closing date. The pre-funding period for any trust will be defined as 
the period beginning on the closing date and ending on the earliest to 
occur of (i) the date on which the amount on deposit in the pre-funding 
account is less than a specified dollar amount, (ii) the date on which 
an event of default occurs under the related pooling and servicing 
agreement or (iii) the date which is the later of three months or 
ninety (90) days after the closing date. Certain specificity and 
monitoring requirements described below will be met and will be 
disclosed in the pooling and servicing agreement and/or the prospectus 
or private placement memorandum.
    For transactions involving a trust using pre-funding, on the 
closing date, a portion of the offering proceeds will be allocated to 
the pre-funding account generally in an amount equal to the excess of 
(i) the principal amount of certificates being issued over (ii) the 
principal balance of the receivables being transferred to the trust on 
such closing date. In certain transactions, the aggregate principal 
balance of the receivables intended to be transferred to the trust may 
be larger than the total principal balance of the certificates being 
issued. In these cases, the cash deposited in the pre-funding account 
will equal the excess of the principal balance of the total receivables 
intended to be transferred to the trust over the principal balance of 
the receivables being transferred on the closing date.
    On the closing date, the sponsor transfers the assets to the trust 
in exchange for the certificates. The certificates are then sold to an 
underwriter for cash or to the certificateholders directly if the 
certificates are sold through a placement agent. The cash received by 
the sponsor from the certificateholders (or the underwriter) from the 
sale of the certificates issued by the trust in excess of the purchase 
price for the receivables and certain other trust expenses, such as 
underwriting or placement agent fees and legal and accounting fees, 
constitutes the cash to be deposited in the pre-funding account. Such 
funds are either held in the trust and accounted for separately, or are 
held in a sub-trust. In either event, these funds are not part of 
assets of the sponsor.
    Generally, the receivables are transferred at par value, unless the 
interest rate payable on the receivables is not sufficient to service 
both the interest rates to be paid on the certificates and the 
transaction fees (i.e., servicing fees, trustee fees and fees to credit 
support providers). In such cases, the receivables are sold to the 
trust at a discount, based on an objective, written, mechanical formula 
which is set forth in the pooling and servicing agreement and agreed 
upon in advance between the sponsor, the rating agency and any credit 
support provider or other insurer. The proceeds payable to the sponsor 
from the sale of the receivables transferred to the trust may also be 
reduced to the extent they are used to pay transaction costs (which 
typically include underwriting or placement agent fees and legal and 
accounting fees). In addition, in certain cases, the sponsor may be 
required by the rating agencies or credit support providers to set up 
trust reserve accounts to protect the certificateholders against credit 
losses.
    The pre-funding account of any trust will be limited so that the 
percentage or ratio of the amount allocated to the pre-funding account, 
as compared to the total principal amount of the certificates being 
offered (the pre-funding limit) will not exceed 25%. The pre-funding 
limit (which may be expressed as a ratio or as a stated percentage or a 
combination thereof) will be specified in the prospectus or the private 
placement memorandum.
    Any amounts paid out of the pre-funding account are used solely to 
purchase receivables and to support the certificate pass-through rate 
(as explained below). Amounts used to support the pass-through rate are 
payable only from investment earnings and are not payable from 
principal. However, in the event that, after all of the requisite 
receivables have been transferred into the trust, any funds remain in 
the pre-funding account, such funds will be paid to the 
certificateholders as principal prepayments. Upon termination of the 
trust, if no receivables remain in the trust and all amounts payable to 
certificateholders have been distributed, any amounts remaining in the 
trust would be returned to the sponsor.
    A dramatic change in interest rates on the receivables held in a 
trust using a pre-funding account would be handled as follows. If the 
receivables (other than those with adjustable or variable rates) had 
already been originated prior to the closing date, no action would be 
required as the fluctuations in the market interest rates would not 
affect the receivables transferred to the trust after the closing date. 
In contrast, if interest rates fall after the closing date, loans 
originated after the closing date will tend to be originated at lower 
rates, with the possible result that the receivables will not support 
the certificate pass-through rate. In such situations, the sponsor 
could sell the receivables into the trust at a discount, and more 
receivables would be used to fund the trust in order to support the 
pass-through rate. In a situation where interest rates drop 
dramatically and the sponsor is unable to provide sufficient 
receivables at the requisite interest rates, the pool of receivables 
would be closed. In this latter event, under the terms of the pooling 
and servicing agreement, the certificateholders would receive a 
repayment of principal from the unused cash held in the pre-funding 
account. In transactions where the certificate pass-through rates are 
variable or adjustable, the effects of market interest rate 
fluctuations are mitigated. In no event will fluctuations in interest 
rates payable on the receivable affect the pass-through rate for fixed 
rate certificates.
    The cash deposited into the trust and allocated to the pre-funding 
account is invested in certain permitted investments (see below), which 
may be commingled with other accounts of the trust. The allocation of 
investment earnings to each trust account is made periodically as 
earned in proportion to each account's allocable share of the 
investment returns. As pre-funding account investment earnings are 
required to be used to support (to the extent authorized in the 
particular transaction) the pass-through amounts payable to the 
certificateholders with respect to a periodic distribution date, the 
trustee is necessarily required to make periodic, separate allocations 
of the trust's earning to each trust account, thus ensuring that all 
allocable commingled investment earnings are properly credited to the 
pre-funding account on a timely basis.
The Capitalized Interest Account
    8. In certain transactions where a pre-funding account is used, the 
sponsor and/or originator may also transfer to the trust additional 
cash on the closing date, which is deposited in a capitalized interest 
account and used during the pre-funding period to compensate the 
certificateholders for any shortfall between the investment earnings on 
the pre-funding account and the pass-through interest rate payable 
under the certificates.
    The capitalized interest account is needed in certain transactions 
since the certificates are supported by the receivables and the 
earnings on the pre-funding account, and it is unlikely that the 
investment earnings on the pre-funding account will equal the interest 
rates on the certificates (although such investment earnings will be 
available to pay interest on the certificates). The

[[Page 13851]]

capitalized interest account funds are paid out periodically to the 
certificateholders as needed on distribution dates to support the pass-
through rate. In addition, a portion of such funds may be returned to 
the sponsor from time to time as the receivables are transferred into 
the trust and the need for the capitalized interest account diminishes. 
Any amounts held in the capitalized interest account generally will be 
returned to the sponsor and/or originator either at the end of the pre-
funding period or periodically as receivables are transferred and the 
proportionate amount of funds in the capitalized interest account can 
be reduced. Generally, the capitalized interest account terminates no 
later than the end of the pre-funding period. However, there may be 
some cases where the capitalized interest account remains open until 
the first date distributions are made to certificateholders following 
the end of the pre-funding period.
    In other transactions, a capitalized interest account is not 
necessary because the interest paid on the receivables exceeds the 
interest payable on the certificates at the applicable pass-through 
rate and the fees of the trust. Such excess is sufficient to make up 
any shortfall resulting from the pre-funding account earning less than 
the certificate pass-through rate. In certain of these transactions, 
this occurs because the aggregate principal amount of receivables 
exceeds the aggregate principal amount of certificates.
Pre-Funding Account and Capitalized Interest Account Payments and 
Investments
    9. Pending the acquisition of additional receivables during the 
pre-funding period, it is expected that amounts in the pre-funding 
account and the capitalized interest account will be invested in 
certain permitted investments or will be held uninvested. Pursuant to 
the pooling and servicing agreement, all permitted investments must 
mature prior to the date the actual funds are needed. The permitted 
types of investments in the pre-funding account and capitalized 
interest account are investments which are either: (i) Direct 
obligations of, or obligations fully guaranteed as to timely payment of 
principal and interest by, the United States or any agency or 
instrumentality thereof, provided that such obligations are backed by 
the full faith and credit of the United States or (ii) have been rated 
(or the obligor has been rated) in one of the three highest generic 
rating categories by a rating agency, as set forth in the pooling and 
servicing agreement and as required by the rating agencies. The credit 
grade quality of the permitted investments is generally no lower than 
that of the certificates. The types of permitted investments will be 
described in the pooling and servicing agreement.
    The ordering of interest payments to be made from the pre-funding 
and capitalized interest accounts is pre-established and set forth in 
the pooling and servicing agreement. The only principal payments which 
will be made from the pre-funding account are those made to acquire the 
receivables during the pre-funding period and those distributed to the 
certificateholders in the event that the entire amount in the pre-
funding account is not used to acquire receivables. The only principal 
payments which will be made from the capitalized interest account are 
those made to certificateholders if necessary to support the 
certificate pass-through rate or those made to the sponsor either 
periodically as they are no longer needed or at the end of the pre-
funding period when the capitalized interest account is no longer 
necessary.
The Characteristics of the Receivables Transferred During the Pre-
Funding Period
    10. In order to ensure that there is sufficient specificity as to 
the representations and warranties of the sponsor regarding the 
characteristics of the receivables to be transferred after the closing 
date:
    (i) All such receivables will meet the same terms and conditions 
for eligibility as those of the original receivables used to create the 
trust corpus (as described in the prospectus or private placement 
memorandum and/or pooling and servicing agreement for such 
certificates), which terms and conditions have been approved by a 
rating agency. However, the terms and conditions for determining the 
eligibility of a receivable may be changed if such changes receive 
prior approval either by a majority vote of the outstanding 
certificateholders or by a rating agency;
    (ii) The transfer to the trust of the receivables acquired during 
the pre-funding period will not result in the certificates receiving a 
lower credit rating from the rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (iii) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the trust at the 
end of the pre-funding period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were 
transferred to the trust on the closing date;
    (iv) The trustee of the trust (or any agency with which the trustee 
contracts to provide trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, will enforce all the rights created in favor 
of certificateholders of such trust, including employee benefit plans 
subject to the Act.
    In order to ensure that the characteristics of the receivables 
actually acquired during the pre-funding period are substantially 
similar to receivables that were acquired as of the closing date, the 
characteristics of the additional obligations subsequently acquired 
will be either: (i) Monitored by a credit support provider or other 
insurance provider which is independent of the sponsor; or (ii) an 
independent accountant retained by the sponsor will provide the sponsor 
with a letter (with copies provided to the rating agency, BOSC and the 
trustee) stating whether or not the characteristics of the additional 
obligations acquired after the closing date conform to the 
characteristics of such obligations described in the prospectus, 
private placement memorandum and/or pooling and servicing agreement. In 
preparing such letter, the independent accountant will use the same 
type of procedures as were applicable to the obligations which were 
transferred as of the closing date.
    Each prospectus, private placement memorandum and/or pooling and 
servicing agreement will set forth the terms and conditions for 
eligibility of the receivables to be included in the trust as of the 
related closing date, as well as those to be acquired during the pre-
funding period, which terms and conditions will have been agreed to by 
the rating agencies which are rating the applicable certificates as of 
the closing date. Also included among these conditions is the 
requirement that the trustee be given prior notice of the receivables 
to be transferred, along with such information concerning those 
receivables as may be requested. Each prospectus or private placement 
memorandum will describe the amount to be deposited in, and the 
mechanics of, the pre-funding account and will describe the pre-funding 
period for the trust.
Parties to Transactions
    11. The originator of a receivable is the entity that initially 
lends money to

[[Page 13852]]

a borrower (obligor), such as a home owner or automobile purchaser, or 
leases property to a lessee. The originator may either retain a 
receivable in its portfolio or sell it to a purchaser, such as a trust 
sponsor.
    Originators of receivables included in the trusts will be entities 
that originate receivables in the ordinary course of their businesses, 
including finance companies for whom such origination constitutes the 
bulk of their operations, financial institutions for whom such 
origination constitutes a substantial part of their operations, and any 
kind of manufacturer, merchant, or service enterprise for whom such 
origination is an incidental part of its operations. Each trust may 
contain assets of one or more originators. The originator of the 
receivables may also function as the trust sponsor or servicer. The 
originator may be an affiliate of BOSC.
    12. The sponsor will be one of three entities: (i) A special-
purpose or other corporation unaffiliated with the servicer, (ii) a 
special-purpose or other corporation affiliated with the servicer, or 
(iii) the servicer itself. Where the sponsor is not also the servicer, 
the sponsor's role will generally be limited to acquiring the 
receivables to be included in the trust, establishing the trust, 
designating the trustee, and assigning the receivables to the trust.
    13. The trustee of a trust is the legal owner of the obligations in 
the trust. The trustee is also a party to or beneficiary of all the 
documents and instruments deposited in the trust, and as such is 
responsible for enforcing all the rights created thereby in favor of 
certificateholders.
    The trustee will be an independent entity, and therefore will be 
unrelated to BOSC, the trust sponsor, the servicer or any other member 
of the Restricted Group (as defined in section III.L.). BOSC represents 
that the trustee will be a substantial financial institution or trust 
company experienced in trust activities. The trustee receives a fee for 
its services, which will be paid by the servicer or sponsor or out of 
the trust assets. The method of compensating the trustee which is 
specified in the pooling and servicing agreement will be disclosed in 
the prospectus or private placement memorandum relating to the offering 
of the certificates.
    14. The servicer of a trust administers the receivables on behalf 
of the certificateholders. The servicer's functions typically involve, 
among other things, notifying borrowers of amounts due on receivables, 
maintaining records of payments received on receivables and instituting 
foreclosure or similar proceedings in the event of default. In cases 
where a pool of receivables has been purchased from a number of 
different originators and deposited in a trust, the receivables may be 
``subserviced'' by their respective originators and a single entity may 
``master service'' the pool of receivables on behalf of the owners of 
the related series of certificates. Where this arrangement is adopted, 
a receivable continues to be serviced from the perspective of the 
borrower by the local subservicer, while the investor's perspective is 
that the entire pool of receivables is serviced by a single, central 
master servicer who collects payments from the local subservicers and 
passes them through to certificateholders.
    Receivables of the type suitable for inclusion in a trust 
invariably are serviced with the assistance of a computer. After the 
sale, the servicer keeps the sold receivables on the computer system in 
order to continue monitoring the accounts. Although the records 
relating to sold receivables are kept in the same master file as 
receivables retained by the originator, the sold receivables are 
flagged as having been sold. To protect the investor's interest, the 
servicer ordinarily covenants that this ``sold flag'' will be included 
in all records relating to the sold receivables, including the master 
file, archives, tape extracts and printouts.
    The sold flags are invisible to the obligor and do not affect the 
manner in which the servicer performs the billing, posting and 
collection procedures related to the sold receivables. However, the 
servicer uses the sold flag to identify the receivables for the purpose 
of reporting all activity on those receivables after their sale to 
investors.
    Depending on the type of receivable and the details of the 
servicer's computer system, in some cases the servicer's internal 
reports can be adapted for investor reporting with little or no 
modification. In other cases, the servicer may have to perform special 
calculations to fulfill the investor reporting responsibilities. These 
calculations can be performed on the servicer's main computer, or on a 
small computer with data supplied by the main system. In all cases, the 
numbers produced for the investors are reconciled to the servicer's 
books and reviewed by public accountants.
    The underwriter (i.e., BOSC, its affiliate, or a member of an 
underwriting syndicate or selling group of which BOSC or its affiliate 
is a manager or co-manager) will be a registered broker-dealer that 
acts as underwriter or placement agent with respect to the sale of the 
certificates. Public offerings of certificates are generally made on a 
firm commitment basis. Private placement of certificates may be made on 
a firm commitment or agency basis. It is anticipated that the lead and 
co-managing underwriters will make a market in certificates offered to 
the public.
    In some cases, the originator and servicer of receivables to be 
included in a trust and the sponsor of the trust (although they may 
themselves be related) will be unrelated to BOSC. In other cases, 
however, affiliates of BOSC may originate or service receivables 
included in a trust or may sponsor a trust.

Certificate Price, Pass-Through Rate and Fees

    15. In some cases, the sponsor will obtain the receivables from 
various originators pursuant to existing contracts with such 
originators under which the sponsor continually buys receivables. In 
other cases, the sponsor will purchase the receivables at fair market 
value from the originator or a third party pursuant to a purchase and 
sale agreement related to the specific offering of certificates. In 
other cases, the sponsor will originate the receivables itself.
    As compensation for the receivables transferred to the trust, the 
sponsor receives certificates representing the entire beneficial 
interest in the trust, or the cash proceeds of the sale of such 
certificates. If the sponsor receives certificates from the trust, the 
sponsor sells all or a portion of these certificates for cash to 
investors or securities underwriters.
    16. The price of the certificates, both in the initial offering and 
in the secondary market, is affected by market forces, including 
investor demand, the pass-through interest rate on the certificates in 
relation to the rate payable on investments of similar types and 
quality, expectations as to the effect on yield resulting from 
prepayment of underlying receivables, and expectations as to the 
likelihood of timely payment.
    The pass-through rate for certificates is equal to the interest 
rate on receivables included in the trust minus a specified servicing 
fee.\22\ This rate is generally determined by the same market forces 
that determine the price of a certificate. The price of a certificate 
and its pass-through, or coupon, rate

[[Page 13853]]

together determine the yield to investors. If an investor purchases a 
certificate at less than par, that discount augments the stated pass-
through rate; conversely, a certificate purchased at a premium yields 
less than the stated coupon.
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    \22\ The pass-through rate on certificates representing 
interests in trusts holding leases is determined by breaking down 
lease payments into ``principal'' and ``interest'' components based 
on an implicit interest rate.
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    17. As compensation for performing its servicing duties, the 
servicer (who may also be the sponsor or an affiliate thereof, and 
receive fees for acting in that capacity) will retain the difference 
between payments received on the receivables in the trust and payments 
payable (at the pass-through rate) to certificateholders, except that 
in some cases a portion of the payments on receivables may be paid to a 
third party, such as a fee paid to a provider of credit support. The 
servicer may receive additional compensation by having the use of the 
amounts paid on the receivables between the time they are received by 
the servicer and the time they are due to the trust (which time is set 
forth in the pooling and servicing agreement). The servicer typically 
will be required to pay the administrative expenses of servicing the 
trust, including in some cases the trustee's fee, out of its servicing 
compensation.
    The servicer is also compensated to the extent it may provide 
credit enhancement to the trust or otherwise arrange to obtain credit 
support from another party. This ``credit support fee'' may be 
aggregated with other servicing fees, and is either paid out of the 
interest income received on the receivables in excess of the pass-
through rate or paid in a lump sum at the time the trust is 
established.
    18. The servicer may be entitled to retain certain administrative 
fees paid by a third party, usually the obligor. These administrative 
fees fall into three categories: (a) prepayment fees; (b) late payment 
and payment extension fees; and (c) expenses, fees and charges 
associated with foreclosure or repossession, or other conversion of a 
secured position into cash proceeds, upon default of an obligation.
    Compensation payable to the servicer will be set forth or referred 
to in the pooling and servicing agreement and described in reasonable 
detail in the prospectus or private placement memorandum relating to 
the certificates.
    19. Payments on receivables may be made by obligors to the servicer 
at various times during the period preceding any date on which pass-
through payments to the trust are due. In some cases, the pooling and 
servicing agreement may permit the servicer to place these payments in 
non-interest bearing accounts maintained with itself or to commingle 
such payments with its own funds prior to the distribution dates. In 
these cases, the servicer would be entitled to the benefit derived from 
the use of the funds between the date of payment on a receivable and 
the pass-through date. Commingled payments may not be protected from 
the creditors of the servicer in the event of the servicer's bankruptcy 
or receivership. In those instances when payments on receivables are 
held in non-interest bearing accounts or are commingled with the 
servicer's own funds, the servicer is required to deposit these 
payments by a date specified in the pooling and servicing agreement 
into an account from which the trustee makes payments to 
certificateholders.
    20. The underwriter will receive a fee in connection with the 
securities underwriting or private placement of certificates. In a firm 
commitment underwriting, this fee would consist of the difference 
between what the underwriter receives for the certificates that it 
distributes and what it pays the sponsor for those certificates. In a 
private placement, the fee normally takes the form of an agency 
commission paid by the sponsor. In a best efforts underwriting in which 
the underwriter would sell certificates in a public offering on an 
agency basis, the underwriter would receive an agency commission rather 
than a fee based on the difference between the price at which the 
certificates are sold to the public and what it pays the sponsor. In 
some private placements, the underwriter may buy certificates as 
principal, in which case its compensation would be the difference 
between what it receives for the certificates that it sells and what it 
pays the sponsor for these certificates.

Purchase of Receivables by the Servicer

    21. The applicant represents that as the principal amount of the 
receivables in a trust is reduced by payments, the cost of 
administering the trust generally increases, making the servicing of 
the trust prohibitively expensive at some point. Consequently, the 
pooling and servicing agreement generally provides that the servicer 
may purchase the receivables remaining in the trust when the aggregate 
unpaid balance payable on the receivables is reduced to a specified 
percentage (usually 5 to 10 percent) of the initial aggregate unpaid 
balance.
    The purchase price of a receivable is specified in the pooling and 
servicing agreement and will be at least equal to: (1) The unpaid 
principal balance on the receivable plus accrued interest, less any 
unreimbursed advances of principal made by the servicer; or (2) the 
greater of (a) the amount in (1) or (b) the fair market value of such 
obligations in the case of a REMIC, or the fair market value of the 
receivables in the case of a trust that is not a REMIC.

Certificate Ratings

    22. The certificates will have received one of the three highest 
ratings available from a rating agency. Insurance or other credit 
support (such as surety bonds, letters of credit, guarantees, or 
overcollateralization) will be obtained by the trust sponsor to the 
extent necessary for the certificates to attain the desired rating. The 
amount of this credit support is set by the rating agencies at a level 
that is a multiple of the worst historical net credit loss experience 
for the type of obligations included in the issuing trust.

Provision of Credit Support

    23. In some cases, the master servicer, or an affiliate of the 
master servicer, may provide credit support to the trust (i.e., act as 
an insurer). In these cases, the master servicer, in its capacity as 
servicer, will first advance funds to the full extent that it 
determines that such advances will be recoverable (a) out of late 
payments by the obligors, (b) from the credit support provider (which 
may be the master servicer or an affiliate thereof) or, (c) in the case 
of a trust that issues subordinated certificates, from amounts 
otherwise distributable to holders of subordinated certificates, and 
the master servicer will advance such funds in a timely manner. When 
the servicer is the provider of the credit support and provides its own 
funds to cover defaulted payments, it will do so either on the 
initiative of the trustee, or on its own initiative on behalf of the 
trustee, but in either event it will provide such funds to cover 
payments to the full extent of its obligations under the credit support 
mechanism. In some cases, however, the master servicer may not be 
obligated to advance funds but instead would be called upon to provide 
funds to cover defaulted payments to the full extent of its obligations 
as insurer. Moreover, a master servicer typically can recover advances 
either from the provider of credit support or from future payments on 
the affected assets.
    If the master servicer fails to advance funds, fails to call upon 
the credit support mechanism to provide funds to cover delinquent 
payments, or otherwise fails in its duties, the trustee would be 
required and would be able to enforce the certificateholders' rights, 
as both a party to the pooling and servicing agreement and the owner of 
the trust estate, including rights under the credit support mechanism. 
Therefore, the

[[Page 13854]]

trustee, who is independent of the servicer, will have the ultimate 
right to enforce the credit support arrangement.
    When a master servicer advances funds, the amount so advanced is 
recoverable by the master servicer out of future payments on 
receivables held by the trust to the extent not covered by credit 
support. However, where the master servicer provides credit support to 
the trust, there are protections in place to guard against a delay in 
calling upon the credit support to take advantage of the fact that the 
credit support declines proportionally with the decrease in the 
principal amount of the obligations in the trust as payments on 
receivables are passed through to investors. These safeguards include:
    (a) There is often a disincentive to postponing credit losses 
because the sooner repossession or foreclosure activities are 
commenced, the more value that can be realized on the security for the 
obligation;
    (b) The master servicer has servicing guidelines which include a 
general policy as to the allowable delinquency period after which an 
obligation ordinarily will be deemed uncollectible. The pooling and 
servicing agreement will require the master servicer to follow its 
normal servicing guidelines and will set forth the master servicer's 
general policy as to the period of time after which delinquent 
obligations ordinarily will be considered uncollectible;
    (c) As frequently as payments are due on the receivables included 
in the trust (monthly, quarterly or semi-annually, as set forth in the 
pooling and servicing agreement), the master servicer is required to 
report to the independent trustee the amount of all past-due payments 
and the amount of all servicer advances, along with other current 
information as to collections on the receivables and draws upon the 
credit support. Further, the master servicer is required to deliver to 
the trustee annually a certificate of an executive officer of the 
master servicer stating that a review of the servicing activities has 
been made under such officer's supervision, and either stating that the 
master servicer has fulfilled all of its obligations under the pooling 
and servicing agreement or, if the master servicer has defaulted under 
any of its obligations, specifying any such default. The master 
servicer's reports are reviewed at least annually by independent 
accountants to ensure that the master servicer is following its normal 
servicing standards and that the master servicer's reports conform to 
the master servicer's internal accounting records. The results of the 
independent accountants' review are delivered to the trustee; and
    (d) The credit support has a ``floor'' dollar amount that protects 
investors against the possibility that a large number of credit losses 
might occur towards the end of the life of the trust, whether due to 
servicer advances or any other cause. Once the floor amount has been 
reached, the servicer lacks an incentive to postpone the recognition of 
credit losses because the credit support amount thereafter is subject 
to reduction only for actual draws. From the time that the floor amount 
is effective until the end of the life of the trust, there are no 
proportionate reductions in the credit support amount caused by 
reductions in the pool principal balance. Indeed, since the floor is a 
fixed dollar amount, the amount of credit support ordinarily increases 
as a percentage of the pool principal balance during the period that 
the floor is in effect.

Disclosure

    24. In connection with the original issuance of certificates, the 
prospectus or private placement memorandum will be furnished to 
investing plans. The prospectus or private placement memorandum will 
contain information material to a fiduciary's decision to invest in the 
certificates, including:
    (a) Information concerning the payment terms of the certificates, 
the rating of the certificates, and any material risk factors with 
respect to the certificates;
    (b) A description of the trust as a legal entity and a description 
of how the trust was formed by the seller/servicer or other sponsor of 
the transaction;
    (c) Identification of the independent trustee for the trust;
    (d) A description of the receivables contained in the trust, 
including the types of receivables, the diversification of the 
receivables, their principal terms, and their material legal aspects;
    (e) A description of the sponsor and servicer;
    (f) A description of the pooling and servicing agreement, including 
a description of the seller's principal representations and warranties 
as to the trust assets, including the terms and conditions for 
eligibility of any receivables transferred during the pre-funding 
period and the trustee's remedy for any breach thereof; a description 
of the procedures for collection of payments on receivables and for 
making distributions to investors, and a description of the accounts 
into which such payments are deposited and from which such 
distributions are made; a description of permitted investments for any 
pre-funding account or capitalized interest account; identification of 
the servicing compensation and any fees for credit enhancement that are 
deducted from payments on receivables before distributions are made to 
investors; a description of periodic statements provided to the 
trustee, and provided to or made available to investors by the trustee; 
and a description of the events that constitute events of default under 
the pooling and servicing contract and a description of the trustee's 
and the investors' remedies incident thereto;
    (g) A description of the credit support;
    (h) A general discussion of the principal federal income tax 
consequences of the purchase, ownership and disposition of the pass-
through securities by a typical investor;
    (i) A description of the underwriters' plan for distributing the 
pass-through securities to investors;
    (j) Information about the scope and nature of the secondary market, 
if any, for the certificates; and
    (k) A statement as to the duration of any pre-funding period and 
the pre-funding limit for the trust.
    25. Reports indicating the amount of payments of principal and 
interest are provided to certificateholders at least as frequently as 
distributions are made to certificateholders. Certificateholders will 
also be provided with periodic information statements setting forth 
material information concerning the underlying assets, including, where 
applicable, information as to the amount and number of delinquent and 
defaulted loans or receivables.
    26. In the case of a trust that offers and sells certificates in a 
registered public offering, the trustee, the servicer or the sponsor 
will file such periodic reports as may be required to be filed under 
the Securities Exchange Act of 1934. Although some trusts that offer 
certificates in a public offering will file quarterly reports on Form 
10-Q and Annual Reports on Form 10-K, many trusts obtain, by 
application to the SEC, a complete exemption from the requirement to 
file quarterly reports on Form 10-Q and a modification of the 
disclosure requirements for annual reports on Form 10-K. If such an 
exemption is obtained, these trusts normally would continue to have the 
obligation to file current reports on Form 8-K to report material 
developments concerning the trust and the certificates and copies of 
the statements sent to certificateholders. While the SEC's 
interpretation of the periodic reporting requirements is subject to 
change, periodic reports concerning a trust will be filed to the

[[Page 13855]]

extent required under the Securities Exchange Act of 1934.
    27. At or about the time distributions are made to 
certificateholders, a report will be delivered to the trustee as to the 
status of the trust and its assets, including underlying obligations. 
Such report will typically contain information regarding the trust's 
assets (including those purchased by the trust from any pre-funding 
account), payments received or collected by the servicer, the amount of 
prepayments, delinquencies, servicer advances, defaults and 
foreclosures, the amount of any payments made pursuant to any credit 
support, and the amount of compensation payable to the servicer. Such 
report also will be delivered to or made available to the rating agency 
or agencies that have rated the trust's certificates.
    In addition, promptly after each distribution date, 
certificateholders will receive a statement prepared by the servicer or 
trustee summarizing information regarding the trust and its assets. 
Such statement will include information regarding the trust and its 
assets, including underlying receivables. Such statement will typically 
contain information regarding payments and prepayments, delinquencies, 
the remaining amount of the guaranty or other credit support and a 
breakdown of payments between principal and interest.

Forward Delivery Commitments

    28. BOSC may contemplate entering into forward delivery commitments 
in connection with the offering of pass-through certificates. The 
utility of forward delivery commitments has been recognized with 
respect to offering similar certificates backed by pools of residential 
mortgages, and BOSC may find it desirable in the future to enter into 
such commitments for the purchase of certificates.

Secondary Market Transactions

    29. BOSC may attempt to make a market for securities for which it 
is lead or co-managing underwriter, although it is under no obligation 
to do so. At times, BOSC will facilitate sales by investors who 
purchase certificates if BOSC has acted as agent or principal in the 
original private placement of the certificates and if such investors 
request BOSC's assistance.

Summary

    30. In summary, the applicant represents that the transactions for 
which exemptive relief is requested satisfy the statutory criteria of 
section 408(a) of the Act due to the following:
    (a) The trusts contain ``fixed pools'' of assets. There is little 
discretion on the part of the trust sponsor to substitute receivables 
contained in the trust once the trust has been formed;
    (b) In the case where a pre-funding account is used, the 
characteristics of the receivables to be transferred to the trust 
during the pre-funding period will be substantially similar to the 
characteristics of those transferred to the trust on the closing date, 
thereby giving the sponsor and/or originator little discretion over the 
selection process, and compliance with this requirement will be assured 
by the specificity of the characteristics and the monitoring mechanisms 
contemplated under the proposed exemption. In addition, certain cash 
accounts will be established to support the certificate pass-through 
rate and such cash accounts will be invested in short-term, 
conservative investments; the pre-funding period will be of a 
reasonably short duration; a pre-funding limit will be imposed; and any 
Internal Revenue Service requirements with respect to pre-funding 
intended to preserve the passive income character of the trust will be 
met. The fiduciary of the plans making the decision to invest in 
certificates is thus fully apprised of the nature of the receivables 
which will be held in the trust and has sufficient information to make 
a prudent investment decision.
    (c) Certificates in which plans invest will have been rated in one 
of the three highest rating categories by a rating agency. Credit 
support will be obtained to the extent necessary to attain the desired 
rating;
    (d) All transactions for which BOSC seeks exemptive relief will be 
governed by the pooling and servicing agreement, which is made 
available to plan fiduciaries for their review prior to the plan's 
investment in certificates;
    (e) Exemptive relief from sections 406(b) and 407 for sales to 
plans is substantially limited; and
    (f) BOSC anticipates that it will make a secondary market in 
certificates (although it is under no obligation to do so).

NOTICE TO INTERESTED PERSONS: The applicant represents that because 
those potentially interested participants and beneficiaries cannot all 
be identified, the only practical means of notifying such participants 
and beneficiaries of this proposed exemption is by the publication of 
this notice in the Federal Register. Comments and requests for a 
hearing must be received by the Department not later than 30 days from 
the date of publication of this notice of proposed exemption in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. J. Martin Jara of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Bankers Trust Company (BTC)

Located in New York, New York
[Application Nos. D-10838]

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: (1) The proposed granting to BTC (a) by the Cheslock-Bakker 
Opportunity Fund, L.P. (the LP) of security interests in (i) the 
capital commitments (the Capital Commitments) and capital contributions 
(Capital Contributions) of certain employee benefit plans (the Plans) 
investing in the LP and (ii) a borrower collateral account to which all 
Capital Contributions will be deposited when paid (Borrower Collateral 
Account) and (b) by the LP and by CBA Real Estate Partners, LLC, a 
Delaware limited liability company (the General Partner) of the right 
to make calls for cash contributions (Contribution Calls) under the 
Cheslock-Bakker Opportunity Fund, L.P. Limited Partnership Agreement 
(the Agreement), where BTC is the representative of certain lenders 
(the Lenders) that will fund a so-called ``credit facility'' (the 
Credit Facility) providing credit to the LP, and where the Lenders are 
parties in interest with respect to the Plans; and (2) the execution of 
a partner agreement and estoppel (the Estoppel) under which the Plans 
agree to honor the Contribution Calls; provided that (a) the proposed 
grants and Estoppels 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 Estoppels 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

[[Page 13856]]

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 was formed by the General Partner (as sole general 
partner and sponsor) with the intent of seeking Capital Commitments 
from a limited number of prospective investors who would become limited 
partners (the Partners) of the LP. The General Partner (i.e., CBA Real 
Estate Partners, LLC) is an entity unrelated to BTC, the Lenders and 
the Plans. Under the terms of the Agreement, the LP is expected to 
dissolve in the year 2008. There are three current and prospective 
Partners having, in the aggregate, irrevocable, unconditional capital 
commitments of approximately $140 million.
    2. The LP is designed to invest in real estate-related assets 
including portfolios, individual assets, privately-held operating 
companies, commercial mortgage-backed securities, mezzanine financing 
and other forms of real estate related debt, limited partnerships, and 
other joint ventures. 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 20% per 
annum.
    3. Proceeds from investments may be reinvested to the extent they 
represent a return of capital invested by the LP. To the extent they 
are not reinvested, net proceeds will be distributed to the Partners on 
a quarterly basis or more frequently at the General Partner's 
discretion.
    4. 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 Contribution 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 
Contribution 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:

------------------------------------------------------------------------
                                                            Capital
                   Name of partner                         commitment
------------------------------------------------------------------------
General Motors Hourly Rate Employees Pension Trust,       $65,000,000.01
 by Chase Manhattan Bank, as Trustee.................
General Motors Salaried Employees Pension Trust, by       $34,999,999.99
 Chase Manhattan Bank, as Trustee....................
Kodak Income Retirement Plan, by Boston Safe Trust           $30,000,000
 and Deposit Company, as Trustee.....................
------------------------------------------------------------------------

    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. This indebtedness will take the 
form of the 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 and 
Capital Contributions, including the right to make Contribution Calls, 
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 Contribution Calls unconditionally.
    6. BTC will become agent for a group of Lenders providing a $25 
million 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 and Capital 
Contributions 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 Contribution Calls on the Partners' 
Capital Commitments. The Credit Facility is intended to be available 
until May 31, 2002. The LP can use its credit under the Credit Facility 
either by direct or indirect borrowings, by requesting guaranties, or 
by requesting that letters of credit be issued. All Lenders will 
participate on a pro rata basis with respect to all cash loans, 
guaranties or letters of credit up to the maximum of the Lenders' 
respective commitments. All such loans, guaranties 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 (a) the Partners' Capital Commitments and 
Capital Contributions; and (b) the Borrower Collateral Account. In 
addition, the LP and the General Partner will grant BTC, as agent under 
the Credit Facility for the

[[Page 13857]]

benefit of the Lenders, a security interest in the right to 
Contribution Calls under the Agreement. 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 Contribution Calls unilaterally on the Partners to 
pay their unfunded Capital Commitments, and will apply cash received 
from such Contribution Calls to any outstanding debt.
    8. Under the Credit Facility, each Partner that is a Plan will 
execute an acknowledgment (the 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 
Contribution Calls. The Estoppel will include an acknowledgment and 
covenant by the Plan that, if an event of default exists, such Plan 
will unconditionally honor any Contribution Call made by BTC in 
accordance with the Agreement up to the unfunded Capital Commitment of 
such Plan to the LP.
    9. The applicant represents that at the present time the Kodak 
Retirement Income Trust (the Kodak Trust) holds the assets of one 
defined benefit plan, the Kodak Retirement Income Plan (the Kodak 
Plan), which owns an interest in the LP. The Kodak Trust has made a 
capital commitment of $30 million to the LP. The applicant states that 
some of the Lenders may be parties in interest with respect to the 
Kodak Plan by virtue of such Lenders' (or their affiliates') provision 
of fiduciary services to the Kodak Plan with respect to Kodak Trust 
assets other than its limited partnership interests in the LP. The 
total number of participants in the Kodak Plan is approximately 99,000, 
and the approximate fair market value of the total assets of the Kodak 
Plan held in the Kodak Trust as of December 31, 1997 is $7 billion.
    The applicant represents that the fiduciary generally responsible 
for investment decisions in real estate matters on behalf of the Kodak 
Plan is the Kodak Retirement Income Plan Committee (the Kodak Plan 
Committee), which was responsible for reviewing and authorizing the 
investment in the LP. The Kodak Plan Committee is composed of 
individuals who are officers of Eastman Kodak Company, and such 
individuals are independent of BTC and the other Lenders (as discussed 
in Paragraph 13, below).
    10. The applicant represents that the Kodak Plan is currently the 
only employee benefit plan subject to the Act that is a Partner of the 
LP which requires the relief to be provided by the exemption proposed 
herein. Two other Partners, the General Motors Hourly Rate Employees 
Pension Trust and the General Motors Salaried Employees Pension Trust 
(the GM Trusts), are master trusts for certain qualified plans 
sponsored by the General Motors Corporation and its affiliates, which 
are covered by the Act. However, the applicant has received a 
representation from the relevant independent fiduciary for the GM 
Trusts that the investment in the LP by the GM Trusts qualifies for the 
protections set forth in 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. \23\ 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:
---------------------------------------------------------------------------

    \ 23\ In this regard, the Department is providing no opinion in 
this proposed exemption as to whether the investment in the LP by 
the GM Trusts meets all of the conditions required for relief under 
PTE 96-23.
---------------------------------------------------------------------------

    (1) a representation letter from the applicable fiduciary with 
respect to such Plan substantially identical to the representation 
letter submitted by the fiduciary of the Kodak Plan, 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 is eligible for a class exemption \24\ 
or has obtained an individual exemption from the Department covering 
the potential prohibited transactions which are the subject of this 
proposed exemption.
---------------------------------------------------------------------------

    \ 24\ For example, in addition to the relief provided by PTE 96-
23 noted above, 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.
---------------------------------------------------------------------------

    11. BTC represents that the LP has obtained an opinion of counsel 
as of June 8, 1999 that the LP constitutes an ``operating company'' 
under the Department's plan asset regulations [see 29 CFR 2510.3-
101(c)] and further states that the General Partner is required under 
the Agreement to use its best efforts to cause the LP to conduct its 
affairs so as to constitute an ``operating company.'' \25\
---------------------------------------------------------------------------

    \ 25\ 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.
---------------------------------------------------------------------------

    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 ability of the Kodak 
Trust to withdraw from investment and participation in the LP. \26\ The 
only Plan

[[Page 13858]]

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 Contribution Calls to honor a Partner's Capital 
Commitments.
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    \ 26\ 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 the Kodak Trust's investment 
in the LP and that BTC is independent of and unrelated to the fiduciary 
responsible for authorizing and overseeing the Kodak Trust's investment 
in the LP (the Kodak Trust Fiduciary). The Kodak Trust Fiduciary is the 
Kodak Plan Committee. The Kodak Trust Fiduciary represents that its 
authorization of Kodak Trust investments in the LP was free of any 
influence, authority or control by the Lenders, including BTC. The 
Kodak Trust Fiduciary states that the Kodak 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 
Contribution Calls and Capital Commitments to the Lenders and to honor 
unconditionally Contribution Calls made on behalf of the Lenders 
without recourse to any defenses against the General Partner. The Kodak 
Trust Fiduciary represents that it is independent of and unrelated to 
BTC and the Lenders and that the investment by the Kodak Trust for 
which the Kodak Trust Fiduciary is responsible continues to constitute 
a favorable investment for the Kodak Plan participating in the Kodak 
Trust. The Kodak Trust Fiduciary represents further that the execution 
of the Estoppel is in the best interests and protective of the 
participants and beneficiaries of the Kodak Plan.
    In the event another Plan proposes to become a Partner, the 
applicant represents that it will require representations to be made by 
such Plan's independent fiduciary that are similar to those that have 
been made by the Kodak Trust Fiduciary on behalf of the Kodak Plan. In 
addition, 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, \27\ and not more than 5% of the 
assets of such Plan will be invested in the LP. As noted in paragraph 9 
above, the Kodak Plan has total assets which exceed $100 million and 
has committed amounts to the LP which are less than 5% of its total 
assets.
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    \ 27\ 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 Kodak Plan's investment in the LP was 
authorized and is overseen by the Kodak Trust Fiduciary, which is 
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) had any influence, authority or control 
with respect to the Kodak Trust's investment in the LP or the Kodak 
Trust's execution of the Estoppel; (3) the Kodak Trust Fiduciary 
invested in the LP on behalf of the Kodak 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, \28\ 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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    \ 28\ See footnote 4, ibid.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Bay Internists, Inc. Profit Sharing Plan (the Plan)

Located in Kilmarnock, Virginia
[Application No. D-10847]

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 sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale by the Plan of certain 
unimproved real property (the Property) located in Kilmarnock, 
Virginia, to Bay-Med, a general partnership which is a party in 
interest with respect to the Plan, provided that the following 
conditions are satisfied:
    (a) the proposed sale is a one-time cash transaction;
    (b) the Plan receives the current fair market value for Property, 
as established at the time of the sale by an independent, qualified 
appraiser; and
    (c) the Plan pays no commissions or other expenses associated with 
the sale.

Summary of Facts and Representations

    1. The Plan was established on April 30, 1980, and was amended and 
restated effective July 1, 1989. The Plan is a defined contribution 
plan. As of June 30, 1998, the Plan had 19 participants. As of June 30, 
1999, the Plan had $822,451 in total assets. Bay Internists Inc. (Bay) 
is the sponsor of the Plan. The Plan's trustees are Dr. Charles D. 
Price (Dr. Price) and Steven F. Glessner. Bay was established on July 
10, 1978, and is a professional subchapter ``C'' State of Virginia 
medical corporation specializing in internal medicine.
    Bay-Med was established on May 23, 1985, for the purpose of 
building and maintaining the building in which Bay now conducts its 
medical practice (the Bay Office). Bay-Med is a State of Virginia 
general partnership comprised of the physician-stockholders in Bay, the 
Plan sponsor. Four physician partners in Bay-Med have a 16.67% 
partnership share, and Dr. Price has a 33.32% partnership share in Bay-
Med.
    2. On May 2, 1986, the Plan purchased the Property from the Town of 
Kilmarnock, Virginia, an unrelated third party, for $15,000 in cash. 
The Property is an approximately 1.5 acre parcel of unimproved real 
property located on DMV Drive in Kilmarnock, Virginia. The Property is 
adjacent to the Bay's corporate offices (i.e., the Bay Office).\29\ It 
is represented that the Plan trustees made the decision to purchase the 
Property as a investment for the Plan. The Plan trustees thought that 
the Property would be a good investment for the Plan because it could 
be developed in the future and would be marketable to third parties. At 
the time of purchase, the Property represented approximately 25% of the 
Plan's total assets. The applicant represents that as of June 30, 1998, 
the Property represented less than 6% of the total value of the Plan's 
assets.
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    \29\ The Department is not providing any opinion in this 
proposed exemption as to whether the acquisition and holding of the 
Property by the Plan violated any of the provisions of Part 4 of 
Title I of the Act.
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    3. The applicant represents that since it was originally acquired 
by the Plan,

[[Page 13859]]

the Property has not been used or leased by anyone, including any 
parties in interest described herein. Since it was originally acquired 
by the Plan in 1986, the Property has not been an income-producing 
asset.
    4. The Property was appraised on November 1, 1999 (the Appraisal). 
The Appraisal was prepared by Sandra Hargett (Ms. Hargett), who is an 
independent Virginia state certified appraiser. Ms. Hargett was 
assisted by George W. Yeatman (Mr. Yeatman, collectively; the 
Appraisers). Ms. Hargett and Mr. Yeatman are with Bay Appraisal Co., 
located at 111 N. Main Street in Kilmarnock, Virginia.
    The Appraisers relied primarily on the market approach, with an 
analysis of recent sales of similar properties in the local geographic 
area, to value the Property. The Appraisers determined that the fair 
market value of the Property was $48,000, as of November 1, 1999.\30\ 
Because the Property is adjacent to the Bay Office, the Appraisers 
considered whether this adjacency factor merits a premium above the 
Property's fair market value for a sale of the Property to Bay-Med. In 
this regard, the Appraisers state that the Bay Office has vacant sites 
on each side. Further, due to the large amount of land available in the 
vicinity and because the Bay Office currently is very large, the 
Appraisers represent that there is no data which supports adding a 
premium to the fair market value of the Property because of the 
adjacency to the Bay Office.
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    \30\ The Appraisers state that the Property is currently zoned 
for commercial use and the Appraisal is contingent on the Property 
meeting all relevant local, state and federal regulations for a 
suitable business site. The Appraisers also state that the valuation 
conclusions of the Appraisal are based on the highest and best use 
of the land.
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    5. The applicant proposes that Bay-Med purchase the Property from 
the Plan in a one-time cash transaction. The applicant represents that 
the proposed transaction would be in the best interest and protective 
of the Plan because the Plan will pay no expenses or commissions 
associated with the sale.
    Bay-Med will pay the Plan the current fair market value for the 
Property, as established by an independent qualified appraiser at the 
time of the transaction. The proposed sale of the Property to Bay-Med 
will increase the liquidity of the Plan's portfolio, will enable the 
trustees to diversify the assets of the Plan, and will enable the Plan 
to sell an illiquid, non-income producing asset. The applicant 
maintains that Bay-Med does not have any specific plans for the 
development or future sale of the Property at this time.
    6. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because:
    (a) The proposed sale will be a one-time cash transaction;
    (b) the Plan will receive the current fair market value for each 
Property established at the time of the sale by an independent, 
qualified appraiser;
    (c) the Plan will pay no expenses or commissions associated with 
the sale; and
    (d) the sale will provide the Plan with liquidity and enable the 
Plan to reinvest the proceeds of the sale in financial instruments that 
will provide greater returns.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department 
at (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 or 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 8th day of March, 2000.
Ivan Strasfeld,
Director of Exemption Determinations Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-6047 Filed 3-13-00; 8:45 am]
BILLING CODE 4510-29-P