[Federal Register Volume 67, Number 39 (Wednesday, February 27, 2002)]
[Notices]
[Pages 9070-9097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4501]



[[Page 9069]]

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Part III





Department of Labor





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Pension and Welfare Benefits Administration



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Proposed Exemptions; Deutsche Bank, AG, et al.; Notice

  Federal Register / Vol. 67, No. 39 / Wednesday, February 27, 2002 / 
Notices  

[[Page 9070]]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10924, et al.]


Proposed Exemptions; Deutsche Bank, AG, et al.

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 
requests 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 requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), 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. Interested persons are also invited to submit 
comments and/or hearing requests to PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
[email protected], or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. 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-1513, 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.

Deutsche Bank AG (DB)

Located in Germany, with Affiliates in New York, New York and Other 
Locations

[Exemption Application No. D-10924]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act, section 8477(c)(3) of the 
Federal Employees' Retirement System Act of 1986 (FERSA) 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).\1\
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of FERSA and the Code.
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Section I--Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and 406(b)(1) and (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)(A) through (E) of the Code, shall not apply to:
    (a) the lending of securities to:
    (1) Deutsche Banc Alex. Brown, Inc., its successors or affiliates 
(DBAB);
    (2) any current or future affiliate of DB,\2\ that is a bank, as 
defined in section 202(a)(2) of the Investment Advisers Act of 1940, 
that is supervised by the U.S. or a state, any broker-dealer registered 
under the Securities Exchange Act of 1934 (the ``1934 Act''), or any 
foreign affiliate that is a bank or broker-dealer that is supervised by 
(1) the Securities and Futures Authority (``SFA'') in the United 
Kingdom; (2) the Deutsche Bundesbank and/or the Federal Banking 
Supervisory Authority, i.e., das Bundesaufsichtsamt fuer das 
Kreditwesen (the ``BAK'') in Germany; (3) the Ministry of Finance 
(``MOF'') and/or the Tokyo Stock Exchange in Japan; (4) the Ontario 
Securities Commission, the Investment Dealers Association and/or the 
Office of Superintendent of Financial Institutions in Canada; (5) the 
Swiss Federal Banking Commission in Switzerland; and (6) the Reserve 
Bank of Australia or the Australian Securities and Investments 
Commission and/or Australian Stock Exchange Limited in Australia (the 
branches and/or affiliates in the six enumerated foreign countries 
hereinafter referred to as the ``Foreign Affiliates'') and together 
with the U.S. branches or affiliates (individually, ``Affiliated 
Borrower'' and collectively, ``Affiliated Borrowers''), by employee 
benefit plans, including commingled investment funds holding plan 
assets (the Client Plans or Plans),\3\ for which DB or an affiliate 
acts as securities lending agent or subagent (the ``DB Lending 
Agent'')\4\ and also may serve as

[[Page 9071]]

trustee, custodian or investment manager of securities being lent; and
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    \2\ Any reference to DB shall be deemed to include any 
successors thereto.
    \3\ The common and collective trust funds trusteed, custodied, 
and/or managed by DB or an affiliate, and in which Client Plans 
invest, are referred to herein as ``Commingled Funds.'' The Client 
Plan separate accounts trusteed, custodied, and/or managed by DB or 
an affiliate are referred to herein as ``Separate Accounts.'' 
Commingled Funds and Separate Accounts are collectively referred to 
herein as ``Lender'' or ``Lenders.''
    \4\ DB or an affiliate may be retained by primary securities 
lending agents to provide securities lending services in a sub-agent 
capacity with respect to portfolio securities of clients of such 
primary securities lending agents. As a securities lending sub-
agent, DB's role parallels that under the lending transactions for 
which DB or an affiliate acts as a primary securities lending agent 
on behalf of its clients. References to DB's performance of services 
as securities lending agent should be deemed to include its parallel 
performance as a securities lending sub-agent and references to the 
Client Plans should be deemed to include those plans for which the 
DB Lending Agent is acting as a sub-agent with respect to securities 
lending, unless otherwise specifically indicated or by the context 
of the reference.
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    (b) the receipt of compensation by the DB Lending Agent in 
connection with these transactions.

Section II--Conditions

    Section I of this exemption applies only if the conditions of 
Section II are satisfied. For purposes of this exemption, any 
requirement that the approving fiduciary be independent of the DB 
Lending Agent or the Affiliated Borrower shall not apply in the case of 
an employee benefit plan sponsored and maintained by the DB Lending 
Agent and/or an affiliate for its own employees (a DB Plan) invested in 
a Commingled Fund, provided that at all times the holdings of all DB 
Plans in the aggregate comprise less than 10% of the assets of the 
Commingled Fund.
    (a) For each Client Plan, neither the DB Lending Agent nor any 
affiliate (except as expressly permitted herein) has or exercises 
discretionary authority or control with respect to the investment of 
the assets of Client Plans involved in the transaction or renders 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to such assets, including decisions concerning a Client Plan's 
acquisition or disposition of securities available for loan.
    This paragraph (a) will be deemed satisfied notwithstanding that 
the DB Lending Agent exercises discretionary authority or control or 
renders investment advice in connection with an Index Fund or Model-
Driven Fund managed by the DB Lending Agent in which Client Plans 
invest.
    (b) Any arrangement for the DB Lending Agent to lend securities is 
approved in advance by a Plan fiduciary who is independent of the DB 
Lending Agent (the Independent Fiduciary).
    (c) The specific terms of the securities loan agreement (the Loan 
Agreement) are negotiated by the DB Lending Agent which acts as a 
liaison between the Lender and the Affiliated Borrower to facilitate 
the securities lending transaction. In the case of a Separate Account, 
the Independent Fiduciary of a Client Plan approves the general terms 
of the Loan Agreement between the Client Plan and the Affiliated 
Borrower as well as any material change in such Loan Agreement. In the 
case of a Commingled Fund, approval is pursuant to the procedure 
described in paragraph (i), below.
    (d) The terms of each loan of securities by a Lender to an 
Affiliated Borrower are at least as favorable to such Separate Account 
or Commingled Fund as those of a comparable arm's length transaction 
between unrelated parties.
    (e) A Client Plan, in the case of a Separate Account, may terminate 
the lending agency or sub-agency arrangement at any time, without 
penalty, on five business days notice. A Client Plan in the case of a 
Commingled Fund may terminate its participation in the lending 
arrangement by terminating its investment in the Commingled Fund no 
later than 35 days after the notice of termination of participation is 
received, without penalty to the Plan, in accordance with the terms of 
the Commingled Fund. Upon termination, the Affiliated Borrowers will 
transfer securities identical to the borrowed securities (or the 
equivalent thereof in the event of reorganization, recapitalization or 
merger of the issuer of the borrowed securities) to the Separate 
Account or, if the Plan's withdrawal necessitates a return of 
securities, to the Commingled Fund, within:
    (1) The customary delivery period for such securities;
    (2) Five business days; or
    (3) The time negotiated for such delivery by the Client Plan, in a 
Separate Account, or by the DB Lending Agent, as lending agent to a 
Commingled Fund, and the Affiliated Borrowers, whichever is least.
    (f) The Separate Account, Commingled Fund or another custodian 
designated to act on behalf of the Client Plan, receives from each 
Affiliated Borrower (either by physical delivery, book entry in a 
securities depository located in the United States, wire transfer or 
similar means) by the close of business on or before the day the loaned 
securities are delivered to the Affiliated Borrower, collateral 
consisting of U.S. currency, securities issued or guaranteed by the 
United States Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank, other than DB 
(or any subsequent parent corporation of the DB Lending Agent) or an 
affiliate thereof, or any combination thereof, or other collateral 
permitted under Prohibited Transaction Exemption 81-6 (46 FR 7527, 
January 23, 1981) (PTE 81-6) (as it may be amended or superseded) 
(collectively, the Collateral). The Collateral will be held on behalf 
of a Client Plan in a depository account separate from the Affiliated 
Borrower.
    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the Collateral on the close of business on the day 
preceding the day of the loan is initially at least 102 percent of the 
market value of the loaned securities. The applicable Loan Agreement 
gives the Separate Account or the Commingled Fund in which the Client 
Plan has invested a continuing security interest in, and a lien on or 
title to, the Collateral. The level of the Collateral is monitored 
daily by the DB Lending Agent. If the market value of the Collateral, 
on the close of trading on a business day, is less than 100 percent of 
the market value of the loaned securities at the close of business on 
that day, the Affiliated Borrower is required to deliver, by the close 
of business on the next day, sufficient additional Collateral such that 
the market value of the Collateral will again equal 102 percent.
    (h)(1) For a Lender that is a Separate Account, prior to entering 
into a Loan Agreement, the applicable Affiliated Borrower furnishes its 
most recently available audited and unaudited statements to the DB 
Lending Agent which will, in turn, provide such statements to the 
Client Plan before the Client Plan approves the terms of the Loan 
Agreement. The Loan Agreement contains a requirement that the 
applicable Affiliated Borrower must give prompt notice at the time of a 
loan of any material adverse changes in its financial condition since 
the date of the most recently furnished financial statements. If any 
such changes have taken place, the DB Lending Agent will not make any 
further loans to the Affiliated Borrower unless an Independent 
Fiduciary of the Client Plan in a Separate Account is provided notice 
of any material change and approves the continuation of the lending 
arrangement in view of the changed financial condition.
    (2) For a Lender that is a Commingled Fund, the DB Lending Agent 
will furnish upon reasonable request to an Independent Fiduciary of 
each Client Plan invested in the Commingled Fund the most recently 
available audited and unaudited financial statements of the applicable 
Affiliated Borrower prior to authorization of lending, and annually 
thereafter.
    (i) In the case of Commingled Funds, the information described in 
paragraph (c) (including any information with respect to any material 
change in the arrangement) shall be furnished by the DB Lending Agent 
as lending fiduciary to the Independent Fiduciary of each Client Plan 
whose assets are invested in the Commingled Fund, not less than 30 days 
prior to implementation of the arrangement or material change to the 
lending arrangement as previously described to the Client Plan, and

[[Page 9072]]

thereafter, upon the reasonable request of the Client Plan's 
Independent Fiduciary. In the event of a material adverse change in the 
financial condition of an Affiliated Borrower, the DB Lending Agent 
will make a decision, using the same standards of credit analysis the 
DB Lending Agent would use in evaluating unrelated borrowers, whether 
to terminate existing loans and whether to continue making additional 
loans to the Affiliated Borrower.
    In the event any such Independent Fiduciary submits a notice in 
writing within the 30 day period provided in the preceding paragraph to 
the DB Lending Agent, as lending fiduciary, objecting to the 
implementation of, material change in, or continuation of the 
arrangement, the Plan on whose behalf the objection was tendered is 
given the opportunity to terminate its investment in the Commingled 
Fund, without penalty to the Plan, no later than 35 days after the 
notice of withdrawal is received. In the case of a Plan that elects to 
withdraw pursuant to the foregoing, such withdrawal shall be effected 
prior to the implementation of, or material change in, the arrangement; 
but an existing arrangement need not be discontinued by reason of a 
Plan electing to withdraw. In the case of a Plan whose assets are 
proposed to be invested in the Commingled Fund subsequent to the 
implementation of the arrangement, the Plan's investment in the 
Commingled Fund shall be authorized in the manner described in 
paragraph (c).
    (j) In return for lending securities, the Lender either--
    (1) Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash Collateral. (Under such circumstances, the Lender 
may pay a loan rebate or similar fee to the Affiliated Borrowers, if 
such fee is not greater than the fee the Lender would pay in a 
comparable arm's length transaction with an unrelated party.)
    (k) Except as otherwise expressly provided herein, all procedures 
regarding the securities lending activities will, at a minimum, conform 
to the applicable provisions of PTE 81-6 and Prohibited Transaction 
Exemption 82-63 (46 FR 14804, April 6, 1982) (PTE 82-63), both as 
amended or superseded, as well as to applicable securities laws of the 
United States, the United Kingdom, Canada, Australia, Switzerland, 
Japan and Germany.
    (l) DB agrees to indemnify and hold harmless the Client Plans in 
the United States (including the sponsor and fiduciaries of such Client 
Plans) for any transactions covered by this exemption with an 
Affiliated Borrower so that the Client Plans do not have to litigate 
(e.g., in the case of Deutsche Bank AG, London Branch) in a foreign 
jurisdiction nor sue to realize on the indemnification. Such 
indemnification is against any and all reasonably foreseeable damages, 
losses, liabilities, costs and expenses (including attorney's fees) 
which the Client Plans may incur or suffer, arising from any 
impermissible use by an Affiliated Borrower of the loaned securities, 
from an event of default arising from the failure of an Affiliated 
Borrower to deliver loaned securities in accordance with the applicable 
Loan Agreement or from an Affiliated Borrower's other failure to comply 
with the terms of such agreement, except to the extent that such losses 
are caused by the Client Plan's own negligence.
    If any event of default occurs, to the extent that (i) liquidation 
of the pledged Collateral or (ii) additional cash received from the 
Affiliated Borrower does not provide sufficient funds on a timely 
basis, the DB Lending Agent, as securities lending agent, promptly and 
at its own expense (subject to rights of subrogation in the Collateral 
and against such Affiliated Borrower) will purchase or cause to be 
purchased, for the account of the Client Plan, securities identical to 
the borrowed securities (or their equivalent as discussed above). If 
the Collateral and any such additional cash is insufficient to 
accomplish such purchase, DB, pursuant to the indemnification, 
indemnifies the Client Plan invested in a Separate Account or 
Commingled Fund for any shortfall in the Collateral plus interest on 
such amount and any transaction costs incurred (including attorney's 
fees). Alternatively, if such replacement securities cannot be obtained 
in the open market, DB pays the Lender the difference in U.S. dollars 
between the market value of the loaned securities and the market value 
of the related Collateral as determined on the date of the Affiliated 
Borrower's breach of the obligation to return the securities pursuant 
to the applicable Loan Agreement.
    (m) The Lender receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including but not limited to all interest and dividends on the loaned 
securities, shares of stock as a result of stock splits and rights to 
purchase additional securities, or other distributions.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to any Affiliated Borrower, a copy of the final exemption 
(if granted) and this notice of proposed exemption is provided to the 
Client Plan.
    (o) The Independent Fiduciary of each Client Plan that is invested 
in a Separate Account is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations, and the 
certification of an auditor selected by the DB Lending Agent who is 
independent of the DB Lending Agent (but may or may not be independent 
of the Client Plan) that the loans appear no less favorable to the 
Lender than the pricing established in the schedule described in 
Representation 16, so that the Independent Fiduciary may monitor such 
transactions with the Affiliated Borrower. The Independent Fiduciary of 
a Client Plan invested in a Commingled Fund will receive the auditor's 
certification and, upon request, will also receive the quarterly 
report.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
Affiliated Borrowers; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangement with the DB Lending 
Agent, the foregoing $50 million requirement shall be deemed satisfied 
if such trust or other entity has aggregate assets which are in excess 
of $50 million; provided that if the fiduciary responsible for making 
the investment decision on behalf of such master trust or other entity 
is not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan

[[Page 9073]]

Asset Regulation, which entity is engaged in securities lending 
arrangements with the DB Lending Agent, the foregoing $50 million 
requirement is satisfied if such trust or other entity has aggregate 
assets which are in excess of $50 million (excluding the assets of any 
Client Plan with respect to which the fiduciary responsible for making 
the investment decision on behalf of such group trust or other entity 
or any member of the controlled group of corporations including such 
fiduciary is the employer maintaining such Plan or an employee 
organization whose members are covered by such Plan). However, the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity--
    (A) Has full investment responsibility with respect to plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.
    (q) With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders will be to borrowers unrelated to the DB Lending 
Agent.
    (r) In addition to the above, all loans involving foreign 
Affiliated Borrowers have the following requirements:
    (1) The foreign Affiliated Borrower is a bank, supervised either by 
a state or the United States, a broker-dealer registered under the 
Securities Exchange Act of 1934 or a bank or broker-dealer that is 
supervised by (1) the SFA in the United Kingdom; (2) the BAK in 
Germany; (3) the MOF and/or the Tokyo Stock Exchange in Japan; (4) the 
Ontario Securities Commission, the Investment Dealers Association and/
or the Office of Superintendent of Financial Institutions in Canada; 
(5) the Swiss Federal Banking Commission in Switzerland; and (6) the 
Reserve Bank of Australia or the Australian Securities and Investments 
Commission and/or Australian Stock Exchange Limited in Australia;
    (2) The foreign Affiliated Borrower is in compliance with all 
applicable provisions of Rule 15a-6 under the Securities Exchange Act 
of 1934 (17 CFR 240.15a-6)(Rule 15a-6) which provides foreign broker-
dealers a limited exemption from United States registration 
requirements;
    (3) All Collateral is maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit (unless an 
applicable exemption provides otherwise);
    (4) All Collateral is held in the United States and the situs of 
the securities lending agreements is maintained in the United States 
under an arrangement that complies with the indicia of ownership 
requirements under section 404(b) of the Act and the regulations 
promulgated under 29 CFR 2550.404(b)-1 related to the lending of 
securities; and
    (5) Prior to a transaction involving a foreign Affiliated Borrower, 
the foreign Affiliated Borrower--
    (A) Agrees to submit to the jurisdiction of the United States;
    (B) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consents to service of process on the Process Agent; and
    (D) Agrees that enforcement by a Client Plan of the indemnity 
provided by DB may occur in the United States courts.
    (s) The DB Lending Agent maintains, or causes to be maintained, 
within the United States for a period of six years from the date of 
such transaction, in a manner that is convenient and accessible for 
audit and examination, such records as are necessary to enable the 
persons described in paragraph (t)(1) to determine whether the 
conditions of the exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the DB Lending 
Agent and/or its affiliates, the records are lost or destroyed prior to 
the end of the six-year period; and
    (2) No party in interest other than the DB Lending Agent or its 
affiliates shall be subject to the civil penalty that may be assessed 
under section 502(i) of the Act, or to the taxes imposed by section 
4975(a) and (b) of the Code, if the records are not maintained, or are 
not available for examination as required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of sections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs (t)(1)(B)-
(t)(1)(D) are authorized to examine the trade secrets of the DB Lending 
Agent or its affiliates or commercial or financial information which is 
privileged or confidential.

Section III--Definitions

    (a) DB Plan: An ERISA covered employee benefit plan sponsored and 
maintained by the DB Lending Agent and/or an affiliate for its own 
employees.
    (b) Index Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by the DB Lending Agent or 
an affiliate, 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 Index 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 the DB Lending Agent or its affiliate 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 Plan Asset Regulation; and,
    (4) that involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund which is intended to 
benefit the DB Lending Agent or its affiliate or any party in which the 
DB Lending Agent or its affiliate may have an interest.
    (c) Model-Driven Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by the DB Lending Agent or 
an affiliate, 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 the DB Lending Agent or an affiliate, to 
transform an Index;

[[Page 9074]]

    (2) which contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; 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 the DB Lending 
Agent, any affiliate of the DB Lending Agent, or any party in which the 
DB Lending Agent or any affiliate may have an interest.
    (d) Index: 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;
    (2) the index is created and maintained by an organization 
independent of DB; and
    (3) the index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of the DB 
Lending Agent or an affiliate.

Summary of Facts and Representations

    1. Deutsche Bank AG (hereafter referred to as either ``DB'' or 
``the Applicant'') is a German banking corporation. DB is a leading 
commercial bank which provides a wide range of banking, fiduciary, 
record-keeping, custodial, brokerage and investment services to 
corporations, institutions, governments, employee benefit plans, 
governmental retirement plans and private investors worldwide. DB is 
one of the largest financial institutions in the world in terms of 
assets. As of calendar year 2001, total assets of DB were 928,994 
million Euros. Shareholders equity equaled 43,683 million Euros. DB 
manages over $585 billion in assets either through collective trusts, 
separately managed accounts or mutual funds.
    Outside the United States, DB, as a whole, is not supervised by a 
state or by the United States. However, DB is regulated and supervised 
globally by the BAK in cooperation with the Deutsche Bundesbank (the 
``Bundesbank'').\5\ The BAK is a federal institution with ultimate 
responsibility to the German Ministry of Finance. The Bundesbank is the 
central bank of the Federal Republic of Germany and an integral part of 
the European Central Banks. The BAK supervises the operations of banks, 
banking groups, financial holding groups and foreign bank branches in 
Germany, and has the authority to (a) issue and withdraw banking 
licenses, (b) issue regulations on capital and liquidity requirements 
of banks, (c) request information and conduct investigations, and (d) 
intervene in cases of inadequate capital or liquidity endangered 
deposits, or bankruptcy by temporarily prohibiting certain banking 
transactions. The BAK ensures that DB has procedures for monitoring and 
controlling its worldwide activities through various statutory and 
regulatory standards. Among these standards are requirements for 
adequate internal controls, oversight, administration, and financial 
resources. The BAK reviews compliance with these operational and 
internal control standards through an annual audit performed by the 
year-end auditor and through special audits ordered by the BAK. The 
supervisory authorities require information on the condition of DB and 
its branches through periodic, consolidated financial reports and 
through a mandatory annual report prepared by the auditor. The 
supervisory authorities also require information from DB regarding 
capital adequacy, country risk exposure, and foreign exchange (FX) 
exposures. German banking law mandates penalties to ensure correct 
reporting to the supervisory authorities, and auditors face penalties 
for gross violations of their duties.
---------------------------------------------------------------------------

    \5\ In addition, Deutsche Bank AG, New York Branch, is regulated 
and supervised by the New York State Banking Department. Certain 
activities of Deutsche Bank's New York branch are also regulated and 
supervised by the Federal Reserve Bank of New York. Bankers Trust 
Company, an indirect wholly-owned subsidiary of DB, is a New York 
State bank and a member of the Federal Reserve System.
---------------------------------------------------------------------------

    Additionally, the BAK in cooperation with the Bundesbank supervises 
all branches of DB, wherever located, subjecting them to announced and 
unannounced on-site audits, and all other supervisory controls 
applicable to German banks. With respect to branches located in the 
European Economic Area (``EEA'') member states,\6\ such audits are 
carried out consistent with the applicable European Directives, and 
with respect to branches outside the EEA, consistent with applicable 
international agreements, memoranda of understanding, or other 
arrangements with the relevant foreign supervisory authorities.\7\
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    \6\ DB's branches domiciled outside the EEA are also subject to 
local regulation and supervision by the host country's supervisory 
authority, e.g., the MOF in Japan, the Swiss Federal Banking 
Commission in Switzerland, the Australian Prudential Regulation 
Authority in Australia, and the Office of the Superintendent of 
Financial Institutions in Canada. For DB's branches domiciled in EEA 
member states, the BAK is the lead supervisory authority pursuant to 
the rules on the ``European passport,'' and only some aspects are 
subject to complementary supervision by the host country's 
supervisory authority (e.g., the Securities and Futures Authority in 
the United Kingdom supervises the conduct of the investment business 
of DB in the United Kingdom).
    \7\ As a result of meetings between the U.S. and German 
Regulators in October 1993, the U.S. Department of Treasury has 
accorded national treatment to German bank branches, and the German 
Ministry of Finance has granted relief to branches of U.S. banks in 
Germany, in particular with respect to ``dotation'' or endowment 
capital requirements and capital adequacy standards. Since the 
German Banking Act (s. 53c) allows such exemptions only insofar as 
branches of German companies are afforded equal exemptions in the 
foreign state, this confirms indirectly the recognition of the 
German banking supervisory standards by the U.S. regulators. Thus, 
with respect to capital adequacy, each government has agreed to 
accept the capital adequacy requirements of the other for foreign 
banks doing business in the other's jurisdiction.
---------------------------------------------------------------------------

    DB's subsidiaries that pursue banking and other financial 
activities (other than insurance) or activities that are closely 
related thereto are consolidated with DB and form a ``banking group'' 
for purposes of the capital ratios and the large exposure limits that 
the bank is required to meet also on a group-wide basis. In conformity 
the European Directives,\8\ the BAK supervises such banking groups 
(where their parent institution is domiciled in Germany) on a 
consolidated basis. While oversight is less individualized for 
subsidiaries than for branches, the supervision extends to adequacy of 
equity capital of banking and financial holding groups and compliance 
with the regulations regarding large loans granted by such groups. 
Thus, DB is subject to comprehensive supervision and regulation on a 
consolidated basis by its home country supervisor.\9\
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    \8\ See, e.g., Council Directive 92/30/EEC of 6 April 1992 on 
the supervision of credit institutions on a consolidated basis, 
Council Directive 92/121/EEC of 21 December 1992 on the monitoring 
and control of large exposures of credit.
    \9\ This is also the conclusion reached by the Board of 
Governors of the Federal Reserve System in its Order approving DB's 
application to become a bank holding company, effective May 20, 
1999.
---------------------------------------------------------------------------

    Bankers Trust Company, a wholly-owned subsidiary of DB, is a New 
York banking corporation and a leading commercial bank, providing a 
wide range of banking and related services to various entities, 
including employee benefit plans and other institutional investors. 
Bankers Trust Company, and other affiliates or branches of the 
Applicant, advise various portfolios subject to ERISA that are invested 
in

[[Page 9075]]

certain Index or Model-Driven Funds (collectively, Indexed Accounts) 
that are, respectively, designed to either track or transform an 
independently maintained securities index. Currently, securities in 
those portfolios may be lent to banks and broker-dealers that are not 
DB affiliates through the DB securities lending program.\10\
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    \10\ In this regard, the Department granted a class exemption 
known as Prohibited Transaction Exemption (PTE) 81-6 (46 FR 7527, 
January 23, 1981; as amended at 52 FR 18754, May 19, 1987) to 
provide relief from section 406(a) of the Act for loans of 
securities to borrowers who are not affiliated with the entity that 
is the investment manager of the affected plan or that provides 
investment advice for the plan with respect to the assets being 
loaned. PTE 81-6 does not provide relief for loans to any entities 
that are affiliates of the plans' lending agent. The Department also 
granted certain individual exemptions, known as PTE 98-23 (63 FR 
29435, May 29, 1998)) and PTE 99-50 (65 FR 534, January 5, 2000), to 
provide relief for loans to certain affiliates of DB, but not in 
connection with loans of securities over which DB or an affiliate 
has investment discretion (e.g., assets held in the Indexed 
Accounts).
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    2. The Applicant seeks an exemption to permit it, through its 
branches and affiliates (including bank subsidiaries and affiliated 
broker-dealers) in the United States, Canada, Japan, Switzerland, 
Australia, Germany and the United Kingdom (i.e., Affiliated Borrowers) 
to borrow securities from Indexed Accounts under the conditions 
described herein. For purposes of this proposed exemption, an 
Affiliated Borrower will be any bank, as defined in section 202(a)(2) 
of the Investment Advisers Act of 1940, that is supervised by the U.S. 
or state, any broker-dealer registered under the Securities Exchange 
Act of 1934 (the ``1934 Act''), or any foreign affiliate of Bankers 
Trust Company that is a bank or broker-dealer that is supervised by (1) 
the SFA in the United Kingdom; (2) the BAK in Germany; (3) the MOF and/
or the Tokyo Stock Exchange in Japan; (4) the Ontario Securities 
Commission, the Investment Dealers Association and/or the Office of 
Superintendent of Financial Institutions in Canada; (5) the Swiss 
Federal Banking Commission in Switzerland; and (6) the Reserve Bank of 
Australia or the Australian Securities and Investments Commission and/
or Australian Stock Exchange Limited in Australia (i.e., the Foreign 
Affiliates).
    Branches and/or affiliates in the enumerated countries include: 
Deutsche Bank AG, London Branch; Deutsche Securities Limited, Tokyo 
Branch, Japan Bankers Trust, Ltd. and Deutsche Bank AG, Tokyo Branch; 
DB in Germany; Deutsche Bank AG, Sydney Branch; Deutsche Bank Canada 
and Deutsche Bank Securities Limited; and Deutsche Bank (Suisse) S.A. 
The Applicant and its affiliates actively engage in the borrowing and 
lending of securities, with daily outstanding loan volume averaging 
billions of dollars. The Affiliated Borrowers utilize borrowed 
securities to satisfy their trading requirements or to re-lend to other 
broker-dealers and others who need a particular security for various 
periods of time.
    The Applicant currently offers through various affiliates, 
including Bankers Trust Company, more than 20 collective investment 
funds that are invested according to the criteria of various third-
party indexes or are model-driven based on such indexes (i.e., Index or 
Model-Driven Funds). For example, some funds track the Russell 2000 
Index, while other funds track the Standard & Poor's 500 Composite 
Stock Price Index (the S&P 500 Index). The Index or Model-Driven Funds 
pertinent to this requested exemption track, among others, indices of 
foreign securities such as the MSCI EAFE, the DAX or the Kokosai 
Index.\11\ Most of the Funds track stock indexes, although some Funds 
track indexes of debt securities, such as the Lehman Brothers Bond 
Indexes.\12\
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    \11\ Morgan Stanley maintains the MSCI (``Morgan Stanley 
Composite Index'') EAFE and Kokosai indexes. The DAX (Deutsche 
Aktienindex) is maintained by the Deutsche Boerse, a German stock 
exchange.
    \12\ The indexes of debt securities used for the Funds, such as 
the Lehman Brothers Bond Index, consist primarily of high-quality 
fixed-income securities representing the U.S. government, corporate, 
and mortgage-backed securities sectors of the bond market in the 
U.S. The Applicant currently has several debt Index Funds.
---------------------------------------------------------------------------

    In addition to Index or Model-Driven Funds that are collective 
investment funds, DB or an affiliate may have investment responsibility 
for individual investment funds which are separate portfolios for 
various client accounts, including employee benefit plans, where the 
portfolio is invested in accordance with a third-party index or a model 
based on that index. Such separately managed accounts and collective 
investment funds are also referred to herein as Indexed Accounts.
    3. The securities lending transactions that would be covered by 
this proposed exemption will be initiated for an Indexed Account, as a 
Lender described herein, by a DB Lending Agent, following disclosure to 
the Client Plans of the borrower's affiliation with the DB Lending 
Agent.
    The Applicant represents that the DB Plans will only use the 
exemption to the extent that the DB Plan is invested in a Commingled 
Fund with respect to which, at all times, the holdings of all DB Plans 
in the aggregate comprise less than 10% of the assets of the Commingled 
Fund. No DB Plan Separate Accounts will participate.
    The Applicant represents that at all times, the DB Lending Agent 
will effect loans in a prudent and diversified manner. While the DB 
Lending Agent will normally lend securities to requesting borrowers on 
a ``first come, first served'' basis, as a means of assuring uniformity 
of treatment among borrowers, the Applicant represents that in some 
cases it may not be possible to adhere to a ``first come, first 
served'' allocation. This can occur, for instance, where (a) the credit 
limit established for such borrower by the DB Lending Agent and/or the 
Client Plan has already been satisfied; (b) the ``first in line'' 
borrower is not approved as an Affiliated Borrower by the particular 
Lender whose securities are sought to be borrowed; (c) the borrower and 
the DB Lending Agent have negotiated rates more advantageous to the 
Lender than the rates other borrowers have offered; or (d) the ``first 
in line'' borrower cannot be ascertained, as an operational matter, 
because several borrowers spoke to different DB Lending Agent 
representatives at or about the same time with respect to the same 
security. In situations (a) and (b) above, loans would normally be 
effected with the ``second in line.'' In situation (c) above, this may 
mean that the ``first in line'' borrower receives the next lending 
opportunity. In situation (d) above, securities would be allocated 
equitably among all eligible borrowers.
    4. Except as described herein in connection with Index and Model-
Driven Funds managed by the DB Lending Agent, the Applicant represents 
that neither the DB Lending Agent nor any affiliate will have 
discretionary authority or control with regard to the investment of the 
assets of Client Plans involved in the transaction or will render 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to such assets, including decisions regarding a Client Plan's 
acquisition or disposition of securities available for loan.
    The plan assets for which the DB Lending Agent, to a limited 
extent, exercises discretionary authority or control or renders 
investment advice and which will be available for lending to the 
Affiliated Borrowers will be limited to those invested in Index and 
Model-Driven Funds. All procedures for lending securities will be 
designed to comply with the applicable conditions

[[Page 9076]]

of PTE 81-6 \13\ and PTE 82-63,\14\ as amended or superseded, except as 
described herein.
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    \13\ As noted earlier, PTE 81-6 provides an exemption under 
certain conditions from section 406(a)(1)(A) through (D) of the Act 
and the corresponding provisions of section 4975(c)(1) of the Code 
for the lending of securities that are assets of an employee benefit 
plan to a U.S. broker-dealer registered under the 1934 Act (or 
exempted from registration under the 1934 Act as a dealer in exempt 
Government securities, as defined therein), or to a bank.
    \14\ PTE 82-63 provides an exemption under certain conditions 
from section 406(b)(1) of the Act and section 4975(c)(1)(E) of the 
Code for the payment of compensation to a plan fiduciary for 
services rendered in connection with loans of plan assets that are 
securities. PTE 82-63 permits the payment of compensation to a plan 
fiduciary for the provision of securities lending services only if 
the loan of securities itself is not prohibited under section 406(a) 
of the Act.
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    5. The Applicant represents that any arrangement for the DB Lending 
Agent to lend securities will be approved in advance by a Plan 
fiduciary who is independent of the DB Lending Agent. In addition, the 
Client Plan will acknowledge the relationship between the DB Lending 
Agent and the Affiliated Borrowers. However, all conditions described 
herein that require an independent Plan fiduciary will not, in the case 
of a DB Plan, require that the fiduciary be independent of the DB 
Lending Agent or the Affiliated Borrower.
    6. When acting as a direct securities lending agent, the DB Lending 
Agent, pursuant to authorization from its client, will negotiate the 
terms of loans to Affiliated Borrowers and otherwise act as a liaison 
between the Lender (and its custodian) and the Affiliated Borrower. As 
lending agent, the DB Lending Agent will have the responsibility for 
monitoring receipt of all collateral required, marking such collateral 
to market daily to ensure adequate levels of collateral can be 
maintained, monitoring and evaluating the performance and 
creditworthiness of borrowers, and, if authorized by a client, holding 
and investing cash collateral pursuant to given investment guidelines. 
The DB Lending Agent may also act as trustee, custodian and/or 
investment manager for the Client Plan.
    The DB Lending Agent, as securities lending agent for the Lenders, 
will negotiate a master securities borrowing agreement with a schedule 
of modifications attached thereto (Loan Agreement) with the Affiliated 
Borrowers, as is the case with all borrowers. The Loan Agreement will 
specify, among other things, the right of the Lender to terminate a 
loan at any time and the Lender's rights in the event of any default by 
the Affiliated Borrowers. The Loan Agreement will set forth the basis 
for compensation to the Lender for lending securities to the Affiliated 
Borrowers under each category of collateral. The Loan Agreement will 
also contain a requirement that the Affiliated Borrowers must pay all 
transfer fees and transfer taxes related to the securities loans.
    7. With respect to Lenders who are Separate Accounts, as direct 
lending agent, the DB Lending Agent will, prior to lending the Client 
Plan's securities, enter into an agreement (Client Agreement) with the 
Client Plan, signed by a fiduciary of the Client Plan who is 
independent of the DB Lending Agent and the Affiliated Borrowers. The 
Client Agreement will, among other things, describe the operation of 
the lending program, disclose the form of the securities loan agreement 
to be entered into on behalf of the Client Plan with borrowers, 
identify the securities which are available to be lent, and identify 
the required collateral and the required daily marking-to-market. The 
Client Agreement will also set forth the basis and rate of the DB 
Lending Agent's compensation for the performance of securities lending 
and cash collateral investment services. The Client Plan may terminate 
the Client Agreement at any time, without penalty, on no more than five 
business days notice.
    The Client Agreement will contain provisions to the effect that if 
any Affiliated Borrower is designated by the Client Plan as an approved 
borrower, the Client Plan will acknowledge the relationship between the 
Affiliated Borrower and the DB Lending Agent. The DB Lending Agent will 
represent to the Client Plan that each and every loan made to the 
Affiliated Borrower on behalf of the Client Plan will be effected at 
arm's length terms, and such terms will be in no case less favorable to 
the Client Plan than the pricing established according to the schedule 
described in paragraph 16.
    8. When the DB Lending Agent is lending agent with respect to a 
Commingled Fund, the DB Lending Agent will, prior to the investment of 
a Client Plan's assets in such Commingled Fund, obtain from the Client 
Plan authorization to lend any securities held by the Commingled Fund 
to brokers and other approved borrowers, including the Affiliated 
Borrowers. Prior to obtaining such approval, the DB Lending Agent will 
provide a written description of the operation of the lending program 
(including the basis and rate of the DB Lending Agent's compensation 
for the performance of securities lending and cash collateral 
investment services), disclose the form of the securities loan 
agreement to be entered into on behalf of the Commingled Fund with the 
borrowers, identify the securities which are available to be lent, and 
identify the required collateral and the required daily marking-to-
market.\15\ If the Client Plan objects to the arrangement, it will be 
permitted to withdraw from the Commingled Fund, without penalty, no 
later than 35 days after the notice of withdrawal is received.
---------------------------------------------------------------------------

    \15\ The DB Lending Agent may make transmittals required by the 
exemption to Plan fiduciaries via authorized recordkeepers. The DB 
Lending Agent represents that all decisions reserved to fiduciaries 
under the terms of the exemption will be made by the fiduciaries and 
never by the recordkeeper on behalf of the fiduciary.
---------------------------------------------------------------------------

    In addition, the Client Plan will acknowledge the relationship 
between the DB Lending Agent and the Affiliated Borrowers, and the DB 
Lending Agent will represent that each and every loan made to the 
Affiliated Borrowers by the Commingled Fund will be effected at arm's 
length terms, and such terms will be in no case less favorable to the 
Client Plan than the pricing established according to the schedule 
described in paragraph 16.
    9. When the DB Lending Agent is lending securities under a sub-
agency arrangement, before the Plan participates in the securities 
lending program, the primary lending agent will enter into a securities 
lending agency agreement (Primary Lending Agreement) with a fiduciary 
of the Client Plan who is independent of such primary lending agent, 
the DB Lending Agent, and the Affiliated Borrowers. The primary lending 
agent also will be unrelated to the DB Lending Agent and the Affiliated 
Borrowers. The Primary Lending Agreement will contain provisions 
substantially similar to those in the Client Agreement relating to: the 
description of the lending program, use of an approved form of 
securities loan agreement, specification of the securities to be lent, 
specification of the required collateral margin and the requirement of 
daily marking-to-market, and provision of a list of approved borrowers 
(which will include one or more of the Affiliated Borrowers). The 
Primary Lending Agreement will specifically authorize the primary 
lending agent to appoint sub-agents (including the DB Lending Agent) to 
facilitate performance of securities lending agency functions. The 
Primary Lending Agreement will expressly disclose that the DB Lending 
Agent is to

[[Page 9077]]

act in a sub-agency capacity. The Primary Lending Agreement will also 
set forth the basis and rate for the primary lending agent's 
compensation from the Client Plan for the performance of securities 
lending services and will authorize the primary lending agent to pay a 
portion of its fee, as the primary lending agent determines in its sole 
discretion, to any sub-agent(s) it retains (including the DB Lending 
Agent) pursuant to the authority granted under such agreement.
    Pursuant to its authority to appoint sub-agents, the primary 
lending agent will enter into a securities lending sub-agency agreement 
(Sub-Agency Agreement) with the DB Lending Agent under which the 
primary lending agent will retain and authorize the DB Lending Agent, 
as sub-agent, to lend securities of the primary lending agent's Client 
Plans, subject to the same terms and conditions specified in the 
Primary Lending Agreement. The DB Lending Agent represents that the 
Sub-Agency Agreement will contain provisions that are in substance 
comparable to those described above in connection with a Client 
Agreement in situations where the DB Lending Agent is the primary 
lending agent. The DB Lending Agent will make in the Sub-Agency 
Agreement the same representations described above in paragraph 7 with 
respect to arm's length dealing with the Affiliated Borrowers. The Sub-
Agency Agreement will also set forth the basis and rate for the DB 
Lending Agent's compensation to be paid by the primary lending agent.
    10. In all cases, the DB Lending Agent will maintain transactional 
and market records sufficient to assure compliance with its 
representation that all loans to the Affiliated Borrowers are effected 
at arm's length terms, and in no case less favorable to the Client Plan 
than the pricing established according to the schedule described in 
paragraph 16. Such records will be made available upon reasonable 
request and without charge to the Client Plan fiduciary, who (other 
than in the case of a DB Plan) is independent of the DB Lending Agent 
and the Affiliated Borrowers, in the manner and format agreed to by the 
Client Plan fiduciary and the DB Lending Agent.
    11. A Lender, in the case of a Separate Account, will be permitted 
to terminate the lending agency or sub-agency arrangement at any time 
without penalty, on five business days notice. A Client Plan in the 
case of a Commingled Fund will be permitted to terminate its 
participation in the lending arrangement by terminating its investment 
in the Commingled Fund no later than 35 days after the notice of 
termination of participation is received, without penalty to the Plan, 
in accordance with the terms of the Commingled Fund. Upon a 
termination, the Affiliated Borrower will be contractually obligated to 
return securities identical to the borrowed securities (or the 
equivalent thereof in the event of reorganization, recapitalization or 
merger of the issuer of the borrowed securities) to the Lender within 
one of the following time periods, whichever is least: the customary 
delivery period for such securities, five business days of written 
notification of termination, or the time negotiated for such delivery 
by the Client Plan, in a Separate Account, or by the DB Lending Agent, 
as lending agent to a Commingled Fund, and the Affiliated Borrowers.
    Because the securities must be returned before the end of the 
customary delivery period for sale of those securities, the DB Lending 
Agent need not wait to sell the securities as long as it has the 
contractual assurance that they will be returned before settlement. 
Consequently, the lending has no impact on the investment decision to 
sell or its implementation and, therefore, no effect on tracking error 
vis-a-vis the relevant index.
    12. The Lender, or another custodian designated to act on its 
behalf, will receive collateral from each Affiliated Borrower by 
physical delivery, book entry in a U.S. securities depository, wire 
transfer or similar means by the close of business on or before the day 
the loaned securities are delivered to the Affiliated Borrower. All 
collateral will be received by the Lender or other custodian in the 
United States. The collateral will consist of U.S. currency, securities 
issued or guaranteed by the U.S. Government or its agencies or 
instrumentalities, or irrevocable bank letters of credit issued by a 
U.S. bank other than DB (or any subsequent parent corporation of the DB 
Lending Agent) or an affiliate thereof, or any combination thereof, or 
other collateral permitted under PTE 81-6 (as amended or superseded). 
The collateral will be held on behalf of a Client Plan in a depository 
account separate from the Affiliated Borrower.
    The market value (or, in the case of a letter of credit, a stated 
amount) of the collateral on the close of business on the day preceding 
the day of the loan will be at least 102 percent of the market value of 
the loaned securities. The Loan Agreement will give the Lender a 
continuing security interest in and a lien on or title to the 
collateral. The DB Lending Agent will monitor the level of the 
collateral daily. If the market value of the collateral, on the close 
of trading on a business day, is less than 100 percent (or such greater 
percentage as agreed to by the parties) of the market value of the 
loaned securities at the close of business on that day, the DB Lending 
Agent will require the Affiliated Borrowers to deliver by the close of 
business on the next day sufficient additional collateral to bring the 
level back to at least 102 percent.
    13. Prior to making any loans under the Loan Agreement from 
Separate Accounts, the Affiliated Borrowers will furnish their most 
recent available audited and unaudited financial statements to the DB 
Lending Agent, which will provide such statements to the Client Plan 
invested in such Separate Account before the authorizing fiduciary of 
the Client Plan is asked to approve the proposed lending to the 
Affiliated Borrowers. The terms of the Loan Agreement will contain a 
requirement that the Affiliated Borrowers must give prompt notice to 
the DB Lending Agent at the time of any loan of any material adverse 
change in their financial condition since the date of the most recently 
furnished financial statements. If any such material adverse change has 
taken place, the DB Lending Agent will request that the independent 
fiduciary of the Client Plan, if invested in a Separate Account, 
approve continuation of the lending arrangement in view of the changed 
financial conditions.
    In addition, upon request, the DB Lending Agent will provide the 
audited financial statements of the applicable Affiliated Borrowers to 
Client Plans invested in Commingled Funds on an annual basis.
    14. In the case of Client Plans currently invested in Commingled 
Funds, approval of lending to the Affiliated Borrowers will be 
accomplished by the following special procedure for Commingled Funds. 
The information described in paragraph 8 will be furnished by the DB 
Lending Agent as lending fiduciary to an independent fiduciary of each 
Client Plan invested in Commingled Funds not less than 30 days prior to 
implementation of the lending arrangement, and thereafter, upon the 
reasonable request of the authorizing fiduciary. In the event any such 
authorizing fiduciary submits a notice in writing within the 30-day 
period to the DB Lending Agent, in its capacity as the lending 
fiduciary, objecting to the implementation of or continuation of the 
lending arrangement with the Affiliated Borrowers, the Plan on whose 
behalf the objection was tendered will be given the opportunity to 
terminate its investment in the Commingled Fund,

[[Page 9078]]

without penalty to the Plan, no later than 35 days after the notice of 
withdrawal is received. In the case of a Plan that elects to withdraw 
pursuant to the foregoing, such withdrawal shall be effected prior to 
the implementation of the arrangement; but an existing arrangement need 
not be discontinued by reason of a Plan electing to withdraw. In the 
case of a Plan whose assets are proposed to be invested in a Commingled 
Fund subsequent to the implementation of the arrangement, the Plan's 
investment in the Commingled Fund shall be authorized in the manner 
described in paragraph 8.
    In the case of loans made by Commingled Funds, upon notice by the 
Affiliated Borrower to the DB Lending Agent of a material adverse 
change in its financial conditions, the DB Lending Agent will make a 
decision whether to terminate existing loans and whether to continue 
making additional loans to the Affiliated Borrower, using the same 
standards of credit analysis the DB Lending Agent would use in 
evaluating unrelated borrowers. In the event the Plan invested in a 
Commingled Fund has any objection to the continuation of lending to an 
Affiliated Borrower, it may withdraw from the fund as described above.
    15. With respect to material changes in the lending arrangement 
with the Affiliated Borrowers after approval by Client Plans, the DB 
Lending Agent will obtain approval from Client Plans (whether in 
Separate Accounts or Commingled Funds) prior to implementation of any 
such change. For those Client Plans invested in Commingled Funds, 
approval of the proposed material change will be by the procedure 
described in paragraph 14.
    16. In return for lending securities, the Lender either will 
receive a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan, or will have the opportunity 
to derive compensation through the investment of cash collateral. Under 
such circumstances, the Lender may pay a loan rebate or similar fee to 
the Affiliated Borrowers, if such fee is not greater than the fee the 
Lender would pay in a comparable arm's length transaction with an 
unrelated party.
    In this regard, each time a Lender loans securities to an 
Affiliated Borrower pursuant to the Loan Agreement, the DB Lending 
Agent will reflect in its records the material terms of the loan, 
including the securities to be loaned, the required level of 
collateral, and the fee or rebate payable. The fee or rebate payable 
for each loan will be effected at arm's-length terms, and such terms 
will be in no case less favorable to the Client Plan than the pricing 
established according to the schedule described below. The rebate 
rates, which are established for cash collateralized loans made by the 
Lender, will take into account the potential demand for the loaned 
securities, the applicable benchmark cost of funds (typically the U.S. 
Federal Funds rate established by the Federal Reserve System), the 
overnight ``repo'' rate, or the like and the anticipated investment 
returns on the investment of cash collateral. Further, the lending fees 
with respect to loans collateralized by other than cash will be set 
daily to reflect conditions as influenced by potential market demand. 
The Applicant represents that the securities lending agent fee paid to 
the DB Lending Agent will comply with the requirements of PTE 82-63.
    The DB Lending Agent will establish each day a written schedule of 
lending fees \16\ and rebate rates \17\ with respect to new loans of 
designated classes of securities, such as U.S. Government securities, 
U.S. equities and corporate bonds, international fixed income 
securities and non-U.S. equities, in order to assure uniformity of 
treatment among borrowers and to limit the discretion the DB Lending 
Agent would have in negotiating securities loans to Affiliated 
Borrowers. Loans to all borrowers of a given security on that day will 
be made at rates or lending fees on the relevant daily schedules or at 
rates or lending fees which are more advantageous to the Lenders. The 
Applicant represents that in no case will loans be made to Affiliated 
Borrowers at rates or lending fees that are less advantageous to the 
Lenders than those on the relevant schedules. In addition, it is 
represented that the method of determining the daily securities lending 
rates (fees and rebates) will be disclosed to each Client Plan, whether 
in Separate Accounts or Commingled Funds. For those Client Plans 
invested in Commingled Funds, disclosure will be by the special 
procedure described in paragraph 14.
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    \16\ The DB Lending Agent will adopt minimum daily lending fees 
for non-cash collateral payable by Affiliated Borrowers to the DB 
Lending Agent on behalf of a Lender. Separate minimum daily lending 
fees will be established with respect to loans of designated classes 
of securities. With respect to each designated class of securities, 
the minimum lending fee will be stated as a percentage of the 
principal value of the loaned securities. The DB Lending Agent will 
submit the method for determining such minimum daily lending fees to 
an authorizing fiduciary of the Client Plan, in the case of a 
Separate Account, for approval before initially lending any 
securities to Affiliated Borrowers on behalf of such Client Plan. 
The DB Lending Agent will submit the method for determining such 
minimum daily lending fees to an authorizing fiduciary of each 
Client Plan involved in or planning to invest in a Commingled Fund 
pursuant to the procedure described in paragraph 14, above.
    \17\ Separate maximum daily rebate rates will be established 
with respect to loans of securities within the designated classes 
identified above. Such rebate rates will be based upon an objective 
methodology which takes into account several factors, including 
potential demand for loaned securities, the applicable benchmark 
cost of fund indices, and anticipated investment return on overnight 
investments permitted by the Client Plan's independent fiduciary. 
The DB Lending Agent will submit the method for determining such 
maximum daily rebate rates to such fiduciary before initially 
lending any securities to an Affiliated Borrower on behalf of the 
Client Plan.
---------------------------------------------------------------------------

    17. When a loan of securities by a Lender is collateralized with 
cash, the DB Lending Agent will transfer such cash to the trust or 
other investment vehicle for investment that the Client Plan has 
authorized, and will rebate a portion of the earnings on such 
collateral to the appropriate Affiliated Borrower as agreed to in the 
securities lending agreement between Lender and the Borrower. The DB 
Lending Agent will share with the Client Plan the income earned on the 
investment of cash collateral for the DB Lending Agent's provision of 
lending services, which will reduce the income earned by the Client 
Plans (whether in a Commingled Fund or Separate Account) from the 
lending of securities. The DB Lending Agent may receive a separate 
management fee for providing cash collateral investment services. Where 
collateral other than cash is used, the Affiliated Borrower will pay a 
fee to the Lender based on the value of the loaned securities. These 
fees will also be shared between the Client Plans (whether in a 
Commingled Fund or Separate Account) and the DB Lending Agent. Any 
income or fees shared will be net of cash collateral management fees 
and borrower rebate fees. The sharing of income and fees will be in 
accordance with the arrangements authorized by the Client Plan in 
advance of commencement of the lending program.
    An authorizing fiduciary of the Client Plan also may authorize the 
DB Lending Agent to act as investment manager, custodian, and/or 
directed trustee of the Client Plan's Index or Model-Driven portfolio 
of securities available for lending whether in a Separate Account or 
Commingled Fund, and to receive a reasonable fee for such services.
    18. The DB Lending Agent will negotiate rebate rates for cash 
collateral payable to each borrower, including Affiliated Borrowers, on 
behalf of a Lender. The fees or rebate rates negotiated will be 
effected at arm's length terms, and in no case will be less favorable 
to the Client Plan than the

[[Page 9079]]

pricing established according to the schedule described in paragraph 
16.
    With respect to any loan to an Affiliated Borrower, the DB Lending 
Agent, at the inception of such loan, will not negotiate and agree to a 
rebate rate with respect to such loan which it expects would produce a 
zero or negative return to the Lender over the life of the loan 
(assuming no default on the investments made by the DB Lending Agent 
where it has investment discretion over the cash collateral or on 
investments expected to be made by the Client Plan's designee, where 
the DB Lending Agent does not have investment discretion over cash 
collateral).
    19. The DB Lending Agent may, depending on market conditions, 
reduce the lending fee or increase the rebate rate on any outstanding 
loan to an Affiliated Borrower, or any other borrower. Except in the 
case of a change resulting from a change in the value of any third 
party independent index with respect to which the fee or rebate is 
calculated, such reduction in lending fee or increase in rebate shall 
not establish a lending fee below the minimum or a rebate above the 
maximum set in the schedule of fees and rebates described in paragraph 
16. If the DB Lending Agent reduces the lending fee or increases the 
rebate rate on any outstanding loan from a Separate Account to an 
Affiliated Borrower (except in the case of a change resulting from a 
change in the value of any third party independent index with respect 
to which the fee or rebate is calculated), the DB Lending Agent, by the 
close of business on the date of such adjustment, will provide the 
independent fiduciary of the Client Plan invested in the Separate 
Account with notice (including by electronic means) that it has reduced 
such fee or increased the rebate rate to such Affiliated Borrower and 
that the Client Plan may terminate such loan at any time.
    20. Except as otherwise expressly provided in the exemption, the 
Applicant represents that all procedures regarding the securities 
lending activities will, at a minimum, conform to the applicable 
provisions of PTE 81-6 and PTE 82-63, both as amended or superseded, as 
well as to applicable securities laws of the United States and the 
United Kingdom.
    21. DB agrees to indemnify and hold harmless the Client Plans in 
the United States (including the sponsor and fiduciaries of such Client 
Plans) for any transactions covered by this exemption with the 
Affiliated Borrower so that the Lender does not have to litigate, in 
the case of a foreign Affiliated Borrower, in a foreign jurisdiction, 
nor sue to realize on the indemnification. Such indemnification will be 
against any and all reasonably foreseeable losses, costs and expenses 
(including attorneys fees) which the Lender may incur or suffer arising 
from any impermissible use by an Affiliated Borrower of the loaned 
securities, from an event of default arising from the failure of an 
Affiliated Borrower to deliver loaned securities when due in accordance 
with the provisions of the Loan Agreement or from an Affiliated 
Borrower's other failure to comply with the terms of the Loan 
Agreement, except to the extent that such losses are caused by the 
Client Plan's own negligence. The applicable Affiliated Borrower will 
also be liable to the Lender for breach of contract for any failure by 
such Borrower to deliver loaned securities when due or to otherwise 
comply with the terms of the Loan Agreement.
    If any event of default occurs to the extent that (i) liquidation 
of the pledged collateral or (ii) additional cash received from the 
Affiliated Borrower does not provide sufficient funds on a timely 
basis, the DB Lending Agent, as securities lending agent, promptly and 
at its own expense, shall purchase or cause to be purchased for the 
account of the Lender, securities identical to the borrowed securities 
(or their equivalent). If the collateral and any such additional cash 
is insufficient to accomplish such purchase, DB, pursuant to the 
indemnification, will indemnify the Lender for any shortfall in the 
collateral plus interest on such amount and any transaction costs 
incurred (including attorneys' fees). Alternatively, if such 
replacement securities cannot be obtained in the open market, DB will 
pay the Lender the difference in U.S. dollars between the market value 
of the loaned securities and the market value of the related collateral 
as determined on the date of the Affiliated Borrower's breach of the 
obligation to return the securities pursuant to the applicable Loan 
Agreement.
    The ``market value'' of any securities listed on a national 
securities exchange in the United States will be the last sales price 
on such exchange on the preceding business day or, if there is no sale 
on that day, the last sale price on the next preceding business day on 
which there is a sale on such exchange, as quoted on the consolidated 
tape. If the principal market for securities to be valued is the over-
the-counter market, the securities' market value will be the closing 
sale price as quoted on the National Association of Securities Dealers 
Automated Quotation System (NASDAQ) on the preceding business day or 
the opening price on such business day if the securities are issues for 
which last sale prices are not quoted on NASDAQ. If the securities to 
be valued are not quoted on NASDAQ, their market value shall be the 
highest bid quotation appearing in The Wall Street Journal, National 
Quotation Bureau pink sheets, Salomon Brothers quotation sheets, 
quotation sheets of registered market makers and, if necessary, 
independent dealers' telephone quotations on the preceding business 
day. (In each case, if the relevant quotation does not exist on such 
day, then the relevant quotation on the next preceding business day in 
which there is such a quotation would be the market value.)
    22. The Lender will be entitled to receive the equivalent of all 
distributions made to holders of the borrowed securities during the 
term of the loan, including but not limited to, interest and dividends, 
shares of stock as a result of a stock split and rights to purchase 
additional securities, or other distributions during the loan 
period.\18\
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    \18\ The Applicant represents that dividends and other 
distributions on foreign securities payable to a Lender may be 
subject to foreign tax withholdings. Under these circumstances, the 
applicable Affiliated Borrower, where necessary, will gross-up the 
in-lieu-of-payment (in respect of such dividend or distribution it 
makes) to the Lender so that the Lender will receive back what it 
otherwise would have received (by way of dividend or distribution) 
had it not loaned the securities.
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    23. Further, prior to a Client Plan's authorization of a securities 
lending program, the DB Lending Agent will provide a Plan fiduciary 
with copies of the final exemption (if granted) and this notice of 
proposed exemption.
    24. In order to provide the means for monitoring lending activity 
in Separate Accounts and Commingled Funds, a quarterly report will be 
provided to an auditor selected by the DB Lending Agent who is 
independent of the DB Lending Agent (but may or may not be independent 
of the Client Plan). This report will show the fees or rebates (as 
applicable) on loans to Affiliated Borrowers compared with loans to 
other borrowers, as well as the level of collateral on the loans. The 
Applicant represents that the quarterly report will show, on a daily 
basis, the market value of all outstanding security loans to Affiliated 
Borrowers and to other borrowers as compared to the total collateral 
held for both categories of loans. Further, the quarterly report will 
state the daily fees where collateral other than cash is utilized and 
will specify the details used to establish the daily rebate payable to 
all borrowers

[[Page 9080]]

where cash is used as collateral. The quarterly report also will state, 
on a daily basis, the rates at which securities are loaned to 
Affiliated Borrowers compared with those at which securities are loaned 
to other borrowers.
    The independent auditor will review the lending data on a quarterly 
basis and certify whether the loans have satisfied the criteria of this 
exemption, in that they appear no less favorable to the Separate 
Account or Commingled Fund than the pricing established in the schedule 
described in paragraph 16. Client Plans invested in Separate Accounts 
will receive both the quarterly report and the auditor's certification 
as described above. Client Plans invested in Commingled Funds will 
receive the auditor's certification and, upon request, will receive the 
quarterly report.
    In the event an authorizing fiduciary of a Plan invested in a 
Commingled Fund submits a notice in writing to the DB Lending Agent 
objecting to the continuation of the lending program to the Affiliated 
Borrowers, the Plan on whose behalf the objection was tendered will be 
given the opportunity to terminate its investment in the Commingled 
Fund, without penalty to the Plan, no later than 35 days after the 
notice of withdrawal is received.
    25. To ensure that any lending of securities to an Affiliated 
Borrower will be monitored by an authorizing fiduciary of above average 
experience and sophistication in matters of this kind, only Client 
Plans with total assets having an aggregate market value of at least 
$50 million will be permitted to lend securities to the Affiliated 
Borrowers. However, in the case of two or more Client Plans which are 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a single master trust or any other entity the assets of 
which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan Asset 
Regulation), which entity is engaged in securities lending arrangement 
with the DB Lending Agent, the foregoing $50 million requirement will 
be deemed satisfied if such trust or other entity has aggregate assets 
which are in excess of $50 million; provided that if the fiduciary 
responsible for making the investment decision on behalf of such master 
trust or other entity is not the employer or an affiliate of the 
employer, such fiduciary must have total assets under its management 
and control, exclusive of the $50 million threshold amount attributable 
to plan investment in the commingled entity, which are in excess of 
$100 million. In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan Asset Regulation, which entity 
is engaged in securities lending arrangements with the DB Lending 
Agent, the foregoing $50 million requirement will be satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (excluding the assets of any Client Plan with respect to which 
the fiduciary responsible for making the investment decision on behalf 
of such group trust or other entity or any member of the controlled 
group of corporations including such fiduciary is the employer 
maintaining such Plan or an employee organization whose members are 
covered by such Plan). However, the fiduciary responsible for making 
the investment decision on behalf of such group trust or other entity 
must have full investment responsibility with respect to plan assets 
invested therein, and must have total assets under its management and 
control, exclusive of the $50 million threshold amount attributable to 
plan investment in the commingled entity, which are in excess of $100 
million. In addition, none of the entities described above may be 
formed for the sole purpose of making loans of securities.
    26. With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders by the DB Lending Agent will be to borrowers 
unrelated to the DB Lending Agent. Thus, the competitiveness of the 
loan fee will be continuously tested in the marketplace. Accordingly, 
the Applicant believes that loans to Affiliated Borrowers should result 
in competitive fee income to the Lenders.
    27. With respect to foreign Affiliated Borrowers, the Applicant 
represents that each such entity (e.g., Deutsche Bank AG, London Branch 
and other affiliates in the United Kingdom) is regulated by the host 
country's supervisory authority (e.g., the UK SFA) and is, therefore, 
authorized to conduct an investment banking business in and from the 
host country (e.g., the United Kingdom) as a broker-dealer. The 
proposed exemption will be applicable only to transactions effected by 
a DB Lending Agent with an Affiliated Borrower which is registered as a 
broker-dealer with the host country's supervisory authority (the 
Foreign Authority) and in compliance with Rule 15a-6 under the 
Securities Exchange Act of 1934 (Rule 15a-6). The Applicant represents 
that the role of a broker-dealer in a principal transaction in each of 
the host countries (the United Kingdom, Germany, Japan, Canada, 
Switzerland and Australia) is substantially identical to that of a 
broker-dealer in a principal transaction in the United States. The 
Applicant further represents that registration of a broker-dealer with 
the Foreign Authority is equivalent to registration of a broker-dealer 
with the SEC under the 1934 Act. The Applicant maintains that the 
Foreign Authority has promulgated rules for broker-dealers which are 
equivalent to SEC rules relating to registration requirements, minimum 
capitalization, reporting requirements, periodic examinations, fund 
segregation, client protection, and enforcement. The Applicant 
represents that the rules and regulations set forth by the Foreign 
Authority and the SEC share a common objective: the protection of the 
investor by the regulation of securities markets. The Applicant 
explains that under each Foreign Authority's rules, a person who 
manages investments or gives advice with respect to investments must be 
registered as a ``registered representative.'' If a person is not a 
registered representative and, as part of his duties, makes commitments 
in market dealings or transactions, that person must be registered as a 
``registered trader.'' The Applicant represents that the Foreign 
Authority's rules require each firm which employs registered 
representatives or registered traders to have positive tangible net 
worth and to be able to meet its obligations as they fall due, and that 
the Foreign Authority's rules set forth comprehensive financial 
resource and reporting/disclosure rules regarding capital adequacy. In 
addition to demonstration of capital adequacy, the Applicant states 
that the Foreign Authority's rules impose reporting/disclosure 
requirements on broker-dealers with respect to risk management, 
internal controls, and all records relating to a counterparty, and that 
all records must be produced at the request of the Foreign Authority at 
any time. The Applicant states that Foreign Authority's registration 
requirements for broker-dealers are backed up by potential fines and 
penalties and rules which establish a comprehensive disciplinary 
system.
    28. In addition to the protections afforded by registration with 
the Foreign Authority, the Applicant represents that the Affiliated 
Borrower will comply

[[Page 9081]]

with the applicable provisions of Rule 15a-6 (described below). The 
Applicant represents that compliance by the Affiliated Borrower with 
the requirements of Rule 15a-6 will offer additional protections in 
lieu of registration with the SEC. The Applicant represents that Rule 
15a-6 provides an exemption from U.S. broker-dealer registration for a 
foreign broker-dealer that induces or attempts to induce the purchase 
or sale of any security (including over-the-counter equity and debt 
options) by a ``U.S. institutional investor'' or a ``major U.S. 
institutional investor,'' provided that the foreign broker-dealer, 
among other things, enters into these transactions through a U.S. 
registered broker-dealer intermediary. The term ``U.S. institutional 
investor'', as defined in Rule 15a-6(b)(7), includes an employee 
benefit plan within the meaning of the Act if (a) the investment 
decision is made by a plan fiduciary, as defined in section 3 (21) of 
the Act, which is either a bank, savings and loan association, 
insurance company or registered investment advisor, (b) the employee 
benefit plan has total assets in excess of $5,000,000, or (c) the 
employee benefit plan is a self-directed plan with investment decisions 
made solely by persons that are ``accredited investors'' as defined in 
Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as 
amended. The term ``major U.S. institutional investor'' is defined as a 
person that is a U.S. institutional investor that has, or has under 
management, total assets in excess of $100 million, or is an investment 
adviser registered under section 203 of the Investment Advisers Act of 
1940 that has total assets under management in excess of $100 million. 
The Applicant represents that the intermediation of the U.S. registered 
broker-dealer imposes upon the foreign broker-dealer the requirement 
that the securities transaction be effected in accordance with a number 
of U.S. securities laws and regulations applicable to U.S. registered 
broker-dealers.
    The Applicant represents that, under Rule 15a-6, a foreign broker-
dealer that induces or attempts to induce the purchase or sale of any 
security by a U.S. institutional or major U.S. institutional investor 
in accordance with 15a-6 must, among other things:
    a. Consent to service of process for any civil action brought by, 
or proceeding before, the SEC or any self-regulatory organization;
    b. Provide the SEC with any information or documents within its 
possession, custody or control, any testimony of any foreign associated 
persons,\19\ and any assistance in taking the evidence of other 
persons, wherever located, that the SEC requests and that relates to 
transactions effected pursuant to Rule 15a-6; and
    c. Rely on the U.S. registered broker-dealer through which the 
transactions with the U.S. institutional and major U.S. institutional 
investors are effected to (among other things):
---------------------------------------------------------------------------

    \19\ A foreign associated person is defined in Rule 15a-6(b)(2) 
as any natural person domiciled outside the United States who is an 
associated person, as defined in section 3(a)(18) of the 1934 Act, 
of the foreign broker or dealer, and who participates in the 
solicitation of a U.S. institutional investor or a major U.S. 
institutional investor under Rule 15a-6(a)(3).
---------------------------------------------------------------------------

    1. Effect the transactions, other than negotiating their terms;
    2. Issue all required confirmations and statements;
    3. As between the foreign broker-dealer and the U.S. registered 
broker-dealer, extend or arrange for the extension of credit in 
connection with the transactions;
    4. Maintain required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by 
Certain Exchange Members, Brokers and Dealers) of the 1934 Act;
    5. Receive, deliver and safeguard funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or major U.S. institutional investor in compliance with Rule 
15c3-3 of the 1934 Act (Customer Protection-Reserves and Custody of 
Securities); and
    6. Participate in all oral communications (e.g., telephone calls) 
between a foreign associated person and the U.S. institutional investor 
(other than a major U.S. institutional investor), and accompany the 
foreign associated person on all visits with both U.S. institutional 
and major U.S. institutional investors. By virtue of this 
participation, the U.S. registered broker-dealer would become 
responsible for the content of all these communications.
    All collateral will be maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit. All collateral will 
be held in the United States and the DB Lending Agent will maintain the 
situs of the Loan Agreements (evidencing the Lender's right to return 
of the loaned securities and the continuing interest in and lien on or 
title to the collateral) in the United States under an arrangement that 
complies with the indicia of ownership requirements under section 
404(b) of the Act and the regulations promulgated under 29 CFR 
2550.404(b)-1.
    Prior to a transaction involving a foreign Affiliated Borrower, the 
foreign Affiliated Borrower will (a) agree to submit to the 
jurisdiction of the courts of the United States; (b) agree to appoint a 
Process Agent for service of process in the United States, which may be 
an affiliate; (c) consent to service of process on the Process Agent; 
and (d) agree that enforcement by a Client Plan of the indemnity 
provided by DB may occur in the United States Courts.
    29. In summary, the Applicant represents that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    a. For each Client Plan, neither the DB Lending Agent nor any 
affiliate (except as expressly permitted in the exemption) will have or 
exercise discretionary authority or control with respect to the 
investment of the assets of Client Plans involved in the transaction or 
will render investment advice with respect to such assets, including 
decisions concerning a Client Plan's acquisition or disposition of 
securities available for loan, except to the extent that the DB Lending 
Agent exercises discretionary authority or control or renders 
investment advice in connection with an Index Fund or Model-Driven Fund 
managed by the DB Lending Agent in which Client Plans invest.
    b. Any arrangement for the DB Lending Agent to lend securities will 
be approved in advance by a Plan fiduciary who (except in the case of a 
DB Plan) is independent of the DB Lending Agent.
    c. The terms of each loan of securities by a Lender to an 
Affiliated Borrower will be at least as favorable to such Separate 
Account or Commingled Fund as those of a comparable arm's length 
transaction between unrelated parties.
    d. Upon termination of a loan, the Affiliated Borrowers will 
transfer securities identical to the borrowed securities (or the 
equivalent thereof) to the Lender within one of the following time 
periods, whichever is least: (1) The customary delivery period for such 
securities; (2) five business days; or (3) the time negotiated for such 
delivery by the Client Plan, in a Separate Account, or by the DB 
Lending Agent, as lending agent to a Commingled Fund, and the 
Affiliated Borrowers.
    e. The Lender will receive from each Affiliated Borrower collateral 
consisting of U.S. currency, securities issued or guaranteed by the 
United States Government or its agencies or instrumentalities, 
irrevocable bank

[[Page 9082]]

letters of credit issued by a U.S. bank (other than DB or any 
subsequent parent corporation of the DB Lending Agent, or an affiliate 
thereof, or any combination thereof) or other collateral permitted 
under PTE 81-6 (as amended or superseded), which will be held in a 
depository account separate from the Affiliated Borrower.
    f. In return for lending securities, the Lender either will receive 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or will have the opportunity 
to derive compensation through the investment of cash collateral.
    g. DB agrees to indemnify and hold harmless the Client Plans in the 
United States (including the sponsor and fiduciaries of such Client 
Plans) for any transactions covered by this exemption with an 
Affiliated Borrower so that the Client Plans do not have to litigate, 
in the case of a foreign Affiliated Borrower, in a foreign jurisdiction 
nor sue to realize on the indemnification.
    h. All loans involving foreign Affiliated Borrowers will involve 
Affiliated Borrowers that are registered as broker-dealers subject to 
regulation by the Foreign Authority and that are in compliance with all 
applicable provisions of Rule 15a-6.
    i. Prior to a transaction involving a foreign Affiliated Borrower, 
the foreign Affiliated Borrower will: agree to submit to the 
jurisdiction of the United States; agree to appoint a Process Agent in 
the United States; consent to service of process on the Process Agent; 
and agree that enforcement by a Client Plan of the indemnity provided 
by DB may occur in the United States courts.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number).

Barclays Global Investors, N.A. (BGI)

Located in San Francisco, California

[Exemption Application No. D-10925]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act, section 8477(c)(3) of the 
Federal Employees' Retirement System Act of 1986 (FERSA) 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).\20\
---------------------------------------------------------------------------

    \20\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of FERSA and the Code.
---------------------------------------------------------------------------

Section I--Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and 406(b)(1) and (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)(A) through (E) of the Code, shall not apply to:
    (a) The lending of securities to:
    (1) Barclays Capital Inc., its successors or affiliates (BC NY);
    (2) Barclays Capital Securities Limited, its successors or 
affiliates (BC UK);
    (3) Barclays Global Investor Services, its successors or affiliates 
(BGIS); and
    (4) any future affiliate of BGI \21\, subject to the regulatory 
requirements applicable to BC NY, BC UK and/or BGIS (individually, 
``Borrower'' and collectively, ``Borrowers''), which are domestic or 
foreign broker-dealers, by employee benefit plans, including commingled 
investment funds holding plan assets (the Client Plans or Plans)\22\, 
for which BGI, an affiliate of the proposed Borrowers, acts as 
securities lending agent or subagent\23\ and also may serve as trustee, 
custodian or investment manager of securities being lent; and
---------------------------------------------------------------------------

    \21\ Any reference to BGI shall be deemed to include any 
successors thereto.
    \22\ The common and collective trust funds trusteed, custodied, 
and/or managed by BGI, and in which Client Plans invest, are 
referred to herein as ``Commingled Funds.'' The Client Plan separate 
accounts trusteed, custodied, and/or managed by BGI are referred to 
herein as ``Separate Accounts.'' Commingled Funds and Separate 
Accounts are collectively referred to herein as ``Lender'' or 
``Lenders.''
    \23\ BGI may be retained by primary securities lending agents to 
provide securities lending services in a sub-agent capacity with 
respect to portfolio securities of clients of such primary 
securities lending agents. As a securities lending sub-agent, BGI's 
role parallels that under the lending transactions for which BGI 
acts as a primary securities lending agent on behalf of its clients. 
References to BGI's performance of services as securities lending 
agent should be deemed to include its parallel performance as a 
securities lending sub-agent and references to the Client Plans 
should be deemed to include those plans for which BGI is acting as a 
sub-agent with respect to securities lending, unless otherwise 
specifically indicated or by the context of the reference.
---------------------------------------------------------------------------

    (b) the receipt of compensation by BGI in connection with these 
transactions.

Section II--Conditions

    Section I of this exemption applies only if the conditions of 
Section II are satisfied. For purposes of this exemption, any 
requirement that the approving fiduciary be independent of BGI or the 
Borrower shall not apply in the case of a Barclays Plan invested in a 
Commingled Fund, provided that at all times, the holdings of all 
Barclays Plans in the aggregate comprise less than 10% of the assets of 
the Commingled Fund.
    (a) For each Client Plan, neither BGI nor any affiliate (except as 
expressly permitted herein) has or exercises discretionary authority or 
control with respect to the investment of the assets of Client Plans 
involved in the transaction or renders investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to such assets, including 
decisions concerning a Client Plan's acquisition or disposition of 
securities available for loan.
    This paragraph (a) will be deemed satisfied notwithstanding that 
BGI exercises discretionary authority or control or renders investment 
advice in connection with an Index Fund or Model-Driven Fund managed by 
BGI in which Client Plans invest.
    (b) Any arrangement for BGI to lend securities is approved in 
advance by a Plan fiduciary who is independent of BGI (the Independent 
Fiduciary).
    (c) The specific terms of the securities loan agreement (the Loan 
Agreement) are negotiated by BGI which acts as a liaison between the 
Lender and the Borrower to facilitate the securities lending 
transaction. In the case of a Separate Account, the Independent 
Fiduciary of a Client Plan approves the general terms of the Loan 
Agreement between the Client Plan and the Borrower as well as any 
material change in such Loan Agreement. In the case of a Commingled 
Fund, approval is pursuant to the procedure described in paragraph (i), 
below.
    (d) The terms of each loan of securities by a Lender to a Borrower 
are at least as favorable to such Separate Account or Commingled Fund 
as those of a comparable arm's length transaction between unrelated 
parties.
    (e) A Client Plan, in the case of a Separate Account, may terminate 
the lending agency or sub-agency arrangement at any time, without 
penalty, on five business days notice. A Client Plan in the case of a 
Commingled Fund may terminate its participation in the lending 
arrangement by terminating its investment in the Commingled Fund no 
later than 35 days after the notice of termination of participation is 
received, without penalty to the Plan, in accordance with the terms of 
the Commingled Fund. Upon termination, the Borrowers will transfer 
securities identical to the borrowed securities (or the equivalent 
thereof in the event of reorganization, recapitalization or merger of 
the issuer of the borrowed securities) to the Separate Account or, if 
the Plan's withdrawal necessitates a

[[Page 9083]]

return of securities, to the Commingled Fund, within:
    (1) The customary delivery period for such securities;
    (2) Five business days; or
    (3) The time negotiated for such delivery by the Client Plan, in a 
Separate Account, or by BGI, as lending agent to a Commingled Fund, and 
the Borrowers, whichever is least.
    (f) The Separate Account, Commingled Fund or another custodian 
designated to act on behalf of the Client Plan, receives from each 
Borrower (either by physical delivery, book entry in a securities 
depository located in the United States, wire transfer or similar 
means) by the close of business on or before the day the loaned 
securities are delivered to the Borrower, collateral consisting of U.S. 
currency, securities issued or guaranteed by the United States 
Government or its agencies or instrumentalities, irrevocable bank 
letters of credit issued by a U.S. bank, other than Barclays Bank PLC 
(Barclays)(or any subsequent parent corporation of BGI, BC NY, BC UK 
and BGIS) or an affiliate thereof, or any combination thereof, or other 
collateral permitted under Prohibited Transaction Exemption 81-6 (46 FR 
7527, January 23, 1981) (PTE 81-6) (as it may be amended or superseded) 
(collectively, the Collateral). The Collateral will be held on behalf 
of a Client Plan in a depository account separate from the Borrower.
    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the Collateral on the close of business on the day 
preceding the day of the loan is initially at least 102 percent of the 
market value of the loaned securities. The applicable Loan Agreement 
gives the Separate Account or the Commingled Fund in which the Client 
Plan has invested a continuing security interest in and a lien on or 
title to the Collateral. The level of the Collateral is monitored daily 
by BGI. If the market value of the Collateral, on the close of trading 
on a business day, is less than 100 percent of the market value of the 
loaned securities at the close of business on that day, the Borrower is 
required to deliver, by the close of business on the next day, 
sufficient additional Collateral such that the market value of the 
Collateral will again equal 102 percent.
    (h) (1) For a Lender that is a Separate Account, prior to entering 
into a Loan Agreement, the applicable Borrower furnishes its most 
recently available audited and unaudited statements to BGI which will, 
in turn, provide such statements to the Client Plan before the Client 
Plan approves the terms of the Loan Agreement. The Loan Agreement 
contains a requirement that the applicable Borrower must give prompt 
notice at the time of a loan of any material adverse changes in its 
financial condition since the date of the most recently furnished 
financial statements. If any such changes have taken place, BGI will 
not make any further loans to the Borrower unless an Independent 
Fiduciary of the Client Plan in a Separate Account is provided notice 
of any material change and approves the continuation of the lending 
arrangement in view of the changed financial condition.
    (2) For a Lender that is a Commingled Fund, BGI will furnish upon 
reasonable request to an Independent Fiduciary of each Client Plan 
invested in the Commingled Fund the most recently available audited and 
unaudited financial statements of the applicable Borrower prior to 
authorization of lending, and annually thereafter.
    (i) In the case of Commingled Funds, the information described in 
paragraph (c) (including any information with respect to any material 
change in the arrangement) shall be furnished by BGI as lending 
fiduciary to the Independent Fiduciary of each Client Plan whose assets 
are invested in the Commingled Fund, not less than 30 days prior to 
implementation of the arrangement or material change to the lending 
arrangement as previously described to the Client Plan, and thereafter, 
upon the reasonable request of the Client Plan's Independent Fiduciary. 
In the event of a material adverse change in the financial condition of 
a Borrower, BGI will make a decision, using the same standards of 
credit analysis BGI would use in evaluating unrelated borrowers, 
whether to terminate existing loans and whether to continue making 
additional loans to the Borrower.
    In the event any such Independent Fiduciary submits a notice in 
writing within the 30 day period provided in the preceding paragraph to 
BGI, as lending fiduciary, objecting to the implementation of, material 
change in, or continuation of the arrangement, the Plan on whose behalf 
the objection was tendered is given the opportunity to terminate its 
investment in the Commingled Fund, without penalty to the Plan, no 
later than 35 days after the notice of withdrawal is received. In the 
case of a Plan that elects to withdraw pursuant to the foregoing, such 
withdrawal shall be effected prior to the implementation of, or 
material change in, the arrangement; but an existing arrangement need 
not be discontinued by reason of a Plan electing to withdraw. In the 
case of a Plan whose assets are proposed to be invested in the 
Commingled Fund subsequent to the implementation of the arrangement, 
the Plan's investment in the Commingled Fund shall be authorized in the 
manner described in paragraph (c).
    (j) In return for lending securities, the Lender either'
    (1) Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash Collateral. (Under such circumstances, the Lender 
may pay a loan rebate or similar fee to the Borrowers, if such fee is 
not greater than the fee the Lender would pay in a comparable arm's 
length transaction with an unrelated party.)
    (k) Except as otherwise expressly provided herein, all procedures 
regarding the securities lending activities will, at a minimum, conform 
to the applicable provisions of PTE 81-6 and Prohibited Transaction 
Exemption 82-63 (46 FR 14804, April 6, 1982) (PTE 82-63), both as 
amended or superseded, as well as to applicable securities laws of the 
United States and the United Kingdom.
    (l) Barclays agrees to indemnify and hold harmless the Client Plans 
in the United States (including the sponsor and fiduciaries of such 
Client Plans) for any transactions covered by this exemption with a 
Borrower so that the Client Plans do not have to litigate, in the case 
of BC UK, in a foreign jurisdiction nor sue to realize on the 
indemnification. Such indemnification is against any and all reasonably 
foreseeable damages, losses, liabilities, costs and expenses (including 
attorney's fees) which the Client Plans may incur or suffer, arising 
from any impermissible use by a Borrower of the loaned securities, from 
an event of default arising from the failure of a Borrower to deliver 
loaned securities in accordance with the applicable Loan Agreement or 
from a Borrower's other failure to comply with the terms of such 
agreement, except to the extent that such losses are caused by the 
Client Plan's own negligence.
    If any event of default occurs, to the extent that (i) liquidation 
of the pledged Collateral or (ii) additional cash received from the 
Borrower does not provide sufficient funds on a timely basis, BGI, as 
securities lending agent, promptly and at its own expense (subject to 
rights of subrogation in the Collateral and against such Borrower) will 
purchase or cause to be purchased, for the account of the Client Plan, 
securities identical to the borrowed securities (or their equivalent as

[[Page 9084]]

discussed above). If the Collateral and any such additional cash is 
insufficient to accomplish such purchase, Barclays, pursuant to the 
indemnification, indemnifies the Client Plan invested in a Separate 
Account or Commingled Fund for any shortfall in the Collateral plus 
interest on such amount and any transaction costs incurred (including 
attorney's fees). Alternatively, if such replacement securities cannot 
be obtained in the open market, Barclays pays the Lender the difference 
in U.S. dollars between the market value of the loaned securities and 
the market value of the related Collateral as determined on the date of 
the Borrower's breach of the obligation to return the securities 
pursuant to the applicable Loan Agreement.
    (m) The Lender receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including but not limited to all interest and dividends on the loaned 
securities, shares of stock as a result of stock splits and rights to 
purchase additional securities, or other distributions.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to any Borrower, a copy of this notice of proposed 
exemption, and, if granted, the final exemption, is provided to the 
Client Plan.
    (o) The Independent Fiduciary of each Client Plan that is invested 
in a Separate Account is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations, and the 
certification of an auditor selected by BGI who is independent of BGI 
(but may or may not be independent of the Client Plan) that the loans 
appear no less favorable to the Lender than the pricing established in 
the schedule described in Representation 16, so that the Independent 
Fiduciary may monitor such transactions with the Borrower. The 
Independent Fiduciary of a Client Plan invested in a Commingled Fund 
will receive the auditor's certification and, upon request, will also 
receive the quarterly report.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
Borrowers; provided, however, that --
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangement with BGI, the 
foregoing $50 million requirement shall be deemed satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million; provided that if the fiduciary responsible for making the 
investment decision on behalf of such master trust or other entity is 
not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan Asset Regulation, which entity 
is engaged in securities lending arrangements with BGI, the foregoing 
$50 million requirement is satisfied if such trust or other entity has 
aggregate assets which are in excess of $50 million (excluding the 
assets of any Client Plan with respect to which the fiduciary 
responsible for making the investment decision on behalf of such group 
trust or other entity or any member of the controlled group of 
corporations including such fiduciary is the employer maintaining such 
Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity.
    (A) Has full investment responsibility with respect to plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.
    (q) With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders will be to borrowers unrelated to BGI.
    (r) In addition to the above, all loans involving foreign Borrowers 
have the following requirements:
    (1) The foreign Borrower is registered as a broker-dealer subject 
to regulation by the Securities and Futures Authority of the United 
Kingdom (the SFA);
    (2) The foreign Borrower is in compliance with all applicable 
provisions of Rule 15a-6 under the Securities Exchange Act of 1934 (17 
CFR 240.15a-6)(Rule 15a-6) which provides foreign broker-dealers a 
limited exemption from United States registration requirements;
    (3) All Collateral is maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit (unless an 
applicable exemption provides otherwise);
    (4) All Collateral is held in the United States and the situs of 
the securities lending agreements is maintained in the United States 
under an arrangement that complies with the indicia of ownership 
requirements under section 404(b) of the Act and the regulations 
promulgated under 29 CFR 2550.404(b)-1 related to the lending of 
securities; and
    (5) Prior to a transaction involving a foreign Borrower, the 
foreign Borrower-
    (A) Agrees to submit to the jurisdiction of the United States;
    (B) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consents to service of process on the Process Agent; and
    (D) Agrees that enforcement by a Client Plan of the indemnity 
provided by Barclays may occur in the United States courts.
    (s) BGI maintains, or causes to be maintained, within the United 
States for a period of six years from the date of such transaction, in 
a manner that is convenient and accessible for audit and examination, 
such records as are necessary to enable the persons described in 
paragraph (t)(1) to determine whether the conditions of the exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of BGI and/or its 
affiliates, the records are lost or destroyed prior to the end of the 
six-year period; and
    (2) No party in interest other than BGI or its affiliates shall be 
subject to the civil penalty that may be assessed under section 502(i) 
of the Act, or to the taxes imposed by section 4975(a) and (b) of the 
Code, if the records are not maintained, or are not available for 
examination as required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of sections (a)(2) and (b) of 
section 504 of

[[Page 9085]]

the Act, the records referred to in paragraph (s) are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary. (t)(2) None of the persons described above in paragraphs 
(t)(1)(B)-(t)(1)(D) are authorized to examine the trade secrets of BGI 
or its affiliates or commercial or financial information which is 
privileged or confidential.

Section III--Definitions

    (a) Barclays Plan: An ERISA covered employee benefit plan sponsored 
and maintained by BGI and/or an affiliate for its own employees.
    (b) Index Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by BGI or an affiliate, 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 Index 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 BGI or its affiliate 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 Plan Asset Regulation; and, (4) that involves no 
agreement, arrangement, or understanding regarding the design or 
operation of the Fund which is intended to benefit BGI or its affiliate 
or any party in which BGI or its affiliate may have an interest.
    (c) Model-Driven Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by BGI or an affiliate, 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 BGI or an 
affiliate, to transform an Index;
    (2) which contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; 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 BGI, any 
affiliate of BGI, or any party in which BGI or any affiliate may have 
an interest.
    (d) Index: 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;
    (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 BGI.

Summary of Facts and Representations

    1. The applicants are Barclays Global Investors, N.A. (BGI) and its 
affiliated companies Barclays Capital Inc. (BC NY), Barclays Capital 
Securities Limited (BC UK), and Barclays Global Investors Services 
(BGIS), all of which are subsidiaries of Barclays Bank PLC (Barclays), 
a financial services group based in the United Kingdom. Barclays is a 
full-line investment services group which is an authorized institution 
under the Banking Act of 1987 of the United Kingdom and is regulated by 
the Bank of England. As of December 2000, Barclays had total assets in 
excess of $472 billion.
    BGI is a national bank headquartered in San Francisco, California. 
BGI serves as trustee, investment manager fiduciary and securities 
lending agent for employee benefit plans (Client Plans or Plans) 
invested in separate accounts or collective trust funds that hold plan 
assets on a commingled basis.\24\ BGI also manages certain assets for 
the Federal Thrift Savings Plan established pursuant to the provisions 
of FERSA. BGI is a leader in ``passive'' investment strategies; the 
majority of its assets under management are invested in Index or Model-
Driven Funds (as described more fully below). As of June 2001, BGI and 
its affiliates had over $771 billion in assets under management. Many 
of the Commingled Funds and Separate Accounts for which BGI acts as 
trustee and fiduciary engage in securities lending, with BGI acting as 
securities lending agent.
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    \24\ The common and collective trust funds trusteed, custodied, 
and/or managed by BGI, and in which Client Plans invest, are 
referred to herein as ``Commingled Funds.'' The Client Plan separate 
accounts trusteed, custodied, and/or managed by BGI are referred to 
herein as ``Separate Accounts.'' Commingled Funds and Separate 
Accounts are collectively referred to herein as ``Lender'' or 
``Lenders.''
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    BC NY is a United Kingdom entity licensed in New York. It is an 
investment bank that customarily borrows securities in the ordinary 
course of its prime brokerage and equity finance businesses. BC NY is a 
registered broker-dealer under Section 15 of the Securities Exchange 
Act of 1934 (1934 Act).
    BC UK is a broker-dealer located in London. BC UK also customarily 
borrows securities in the ordinary course of its business. BC UK is 
subject to regulation in the United Kingdom by the UK Securities and 
Futures Authority (SFA).
    BGIS is located in San Francisco, California. BGIS is a registered 
broker-dealer under Section 15 of the 1934 Act. BGIS anticipates that 
in the future it will borrow securities in the ordinary course of its 
business.
    2. The applicants represent that securities lending has become a 
common activity for institutional investors, including employee benefit 
plans, seeking to increase the return on their portfolios. Acting as 
principals, banks and broker-dealers borrow securities to satisfy their 
own needs or to re-lend to other entities wishing to borrow the 
securities. The lender generally requires that the loans of securities 
be fully collateralized by cash, U.S. Government securities, certain 
federal agency obligations or letters of credit. Where the collateral 
is cash, the lender or its agent generally invests the cash, and the 
lender retains a portion of the earnings on the cash collateral as its 
fee for lending the securities. Where non-cash collateral is used, the 
borrower pays a set fee directly to the lender.
    Institutional investors often use the services of an agent in 
performing securities lending transactions. The lending agent is paid a 
fee for its services. Such fee may be a percentage of the income earned 
by the investor

[[Page 9086]]

from lending its securities. The applicants represent that the 
essential functions of a securities lending agent are identifying 
appropriate borrowers of securities and negotiating the terms of loans 
to those borrowers. The agent also performs other services, such as 
monitoring the level of collateral and the value of loaned securities, 
and investing the cash collateral. The lending agent may receive a 
separate fee for the investment of cash collateral. The fee arrangement 
between BGI, as securities lending agent, and the Commingled Fund or 
the Client Plan in a Separate Account, is authorized by an independent 
Plan fiduciary.
    BGI may provide services in several capacities for Client Plans, 
including trustee, custodian, securities lending agent, and/or 
investment manager. In connection with plan assets managed by BGI that 
are invested in Index and Model-Driven Funds, BGI exercises 
discretionary authority or control or renders investment advice with 
respect to such Funds, although BGI's discretion is effectively limited 
because of the nature of Index and Model-Driven Funds.\25\ An Index 
Fund is one that is designed to track the rate of return, risk profile 
and other characteristics of an independently maintained securities 
index 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. A Model-Driven Fund is 
one 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 the investment manager, to transform an 
independently maintained securities index.
---------------------------------------------------------------------------

    \25\ See Proposed Class Exemption for Cross-Trades of Securities 
by Index and Model-Driven Funds as published at 64 FR 70057 (Dec. 
15, 1999).
---------------------------------------------------------------------------

    3. The applicants request an individual exemption for the lending 
of securities held in Commingled Funds or Separate Accounts to BC NY, 
BC UK, BGIS or any future affiliate of BGI subject to the regulatory 
requirements applicable to BC NY, BC UK and/or BGIS (individually, 
``Borrower'' and collectively, ``Borrowers''), by BGI as securities 
lending agent, following disclosure to the Client Plans of the 
Borrower's affiliation with BGI, and for the receipt of compensation by 
BGI in connection with such transactions.
    The applicants represent that Plans sponsored and maintained by BGI 
and/or an affiliate for their own employees (Barclays Plans) will only 
use the exemption to the extent that the Barclays Plan is invested in a 
Commingled Fund with respect to which, at all times, the holdings of 
all Barclays Plans in the aggregate comprise less than 10% of the 
assets of the Commingled Fund. No Barclays Plan Separate Accounts will 
participate.
    The applicants represent that at all times, BGI will effect loans 
in a prudent and diversified manner. While BGI will normally lend 
securities to requesting borrowers on a ``first come, first served'' 
basis, as a means of assuring uniformity of treatment among borrowers, 
the applicants represent that in some cases it may not be possible to 
adhere to a ``first come, first served'' allocation. This can occur, 
for instance, where (a) the credit limit established for such borrower 
by BGI and/or the Client Plan has already been satisfied; (b) the 
``first in line'' borrower is not approved as a borrower by the 
particular Lender whose securities are sought to be borrowed; (c) the 
borrower and BGI have negotiated rates more advantageous to the Lender 
than the rates other borrowers have offered; or (d) the ``first in 
line'' borrower cannot be ascertained, as an operational matter, 
because several borrowers spoke to different BGI representatives at or 
about the same time with respect to the same security. In situations 
(a) and (b), loans would normally be effected with the ``second in 
line.'' In situation (c), this may mean that the ``first in line'' 
borrower receives the next lending opportunity. In situation (d), 
securities would be allocated equitably among all eligible borrowers.
    4. Except as described herein in connection with Index and Model-
Driven Funds managed by BGI, the applicants represent that neither BGI 
nor any affiliate will have discretionary authority or control with 
regard to the investment of the assets of Client Plans involved in the 
transaction or will render investment advice (within the meaning of 29 
CFR 2510.3-21(c)) with respect to such assets, including decisions 
regarding a Client Plan's acquisition or disposition of securities 
available for loan.
    The plan assets for which BGI, to a limited extent, exercises 
discretionary authority or control or renders investment advice and 
which will be available for lending to the Borrowers will be limited to 
those invested in Index and Model-Driven Funds. All procedures for 
lending securities will be designed to comply with the applicable 
conditions of Prohibited Transaction Exemption 81-6 (PTE 81-6)(46 FR 
7527, January 23, 1981) \26\ and Prohibited Transaction Exemption 82-63 
(PTE 82-63)(46 FR 14804, April 6, 1982), \27\ as amended or superseded, 
except as described herein.
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    \26\ PTE 81-6 provides an exemption under certain conditions 
from section 406(a)(1)(A) through (D) of the Act and the 
corresponding provisions of section 4975(c)(1) of the Code for the 
lending of securities that are assets or an employee benefit plan to 
a U.S. broker-dealer registered under the 1934 Act (or exempted from 
registration under the 1934 Act as a dealer in exempt Government 
securities, as defined therein).
    \27\ PTE 82-63 provides an exemption under certain conditions 
from section 406(b)(1) of the Act and section 4975(c)(1)(E) of the 
Code for the payment of compensation to a plan fiduciary for 
services rendered in connection with loans of plan assets that are 
securities. PTE 82-63 permits the payment of compensation to a plan 
fiduciary for the provision of securities lending services only if 
the loan of securities itself is not prohibited under section 406(a) 
of the Act.
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    5. The applicants represent that any arrangement for BGI to lend 
securities will be approved in advance by a Plan fiduciary who is 
independent of BGI. In addition, the Client Plan will acknowledge the 
relationship between BGI and the Borrowers. However, all conditions 
described herein that require an independent Plan fiduciary will not, 
in the case of a Barclays Plan, require that the fiduciary be 
independent of BGI or the Borrower.
    6. When acting as a direct securities lending agent, BGI, pursuant 
to authorization from its client, will negotiate the terms of loans to 
Borrowers and otherwise act as a liaison between the Lender (and its 
custodian) and the Borrower. As lending agent, BGI will have the 
responsibility for monitoring receipt of all collateral required, 
marking such collateral to market daily to ensure adequate levels of 
collateral can be maintained, monitoring and evaluating the performance 
and creditworthiness of borrowers, and, if authorized by a client, 
holding and investing cash collateral pursuant to given investment 
guidelines. BGI may also act as trustee, custodian and/or investment 
manager for the Client Plan.
    BGI, as securities lending agent for the Lenders, will negotiate a 
master securities borrowing agreement with a schedule of modifications 
attached thereto (Loan Agreement) with the Borrowers, as is the case 
with all borrowers. The Loan Agreement will specify, among other 
things, the right of the Lender to terminate a loan at any time and the 
Lender's rights in the event of any default by the Borrowers. The Loan 
Agreement will set forth the basis for compensation to the Lender for 
lending securities to the Borrowers under each category of collateral. 
The

[[Page 9087]]

Loan Agreement will also contain a requirement that the Borrowers must 
pay all transfer fees and transfer taxes related to the securities 
loans.
    7. With respect to Lenders who are Separate Accounts, as direct 
lending agent, BGI will, prior to lending the Client Plan's securities, 
enter into an agreement (Client Agreement) with the Client Plan, signed 
by a fiduciary of the Client Plan who is independent of BGI and the 
Borrowers. The Client Agreement will, among other things, describe the 
operation of the lending program, disclose the form of the securities 
loan agreement to be entered into on behalf of the Client Plan with 
borrowers, identify the securities which are available to be lent, and 
identify the required collateral and the required daily marking-to-
market. The Client Agreement will also set forth the basis and rate of 
BGI's compensation for the performance of securities lending and cash 
collateral investment services. The Client Plan may terminate the 
Client Agreement at any time, without penalty, on no more than five 
business days notice.
    The Client Agreement will contain provisions to the effect that if 
any Borrower is designated by the Client Plan as an approved borrower, 
the Client Plan will acknowledge the relationship between the Borrower 
and BGI and BGI will represent to the Client Plan that each and every 
loan made to the Borrower on behalf of the Client Plan will be effected 
at arm's length terms, and such terms will be in no case less favorable 
to the Client Plan than the pricing established according to the 
schedule described in paragraph 16.
    8. When BGI is lending agent with respect to a Commingled Fund, BGI 
will, prior to the investment of a Client Plan's assets in such 
Commingled Fund, obtain from the Client Plan authorization to lend any 
securities held by the Commingled Fund to brokers and other approved 
borrowers, including the Borrowers. Prior to obtaining such approval, 
BGI will provide a written description of the operation of the lending 
program (including the basis and rate of BGI's compensation for the 
performance of securities lending and cash collateral investment 
services), disclose the form of the securities loan agreement to be 
entered into on behalf of the Commingled Fund with the borrowers, 
identify the securities which are available to be lent, and identify 
the required collateral and the required daily marking-to-market.\28\ 
If the Client Plan objects to the arrangement, it will be permitted to 
withdraw from the Commingled Fund, without penalty, no later than 35 
days after the notice of withdrawal is received.
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    \28\ BGI may make transmittals required by the exemption to Plan 
fiduciaries via authorized recordkeepers. BGI represents that all 
decisions reserved to fiduciaries under the terms of the exemption 
will be made by the fiduciaries and never by the recordkeeper on 
behalf of the fiduciary.
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    In addition, the Client Plan will acknowledge the relationship 
between BGI and the Borrowers, and BGI will represent that each and 
every loan made to the Borrowers by the Commingled Fund will be 
effected at arm's length terms, and such terms will be in no case less 
favorable to the Client Plan than the pricing established according to 
the schedule described in paragraph 16.
    9. When BGI is lending securities under a sub-agency arrangement, 
before the Plan participates in the securities lending program, the 
primary lending agent will enter into a securities lending agency 
agreement (Primary Lending Agreement) with a fiduciary of the Client 
Plan who is independent of such primary lending agent, BGI, and the 
Borrowers. The primary lending agent also will be unrelated to BGI and 
the Borrowers. The Primary Lending Agreement will contain provisions 
substantially similar to those in the Client Agreement relating to: the 
description of the lending program, use of an approved form of 
securities loan agreement, specification of the securities to be lent, 
specification of the required collateral margin and the requirement of 
daily marking-to-market, and provision of a list of approved borrowers 
(which will include one or more of the Borrowers). The Primary Lending 
Agreement will specifically authorize the primary lending agent to 
appoint sub-agents (including BGI) to facilitate performance of 
securities lending agency functions. The Primary Lending Agreement will 
expressly disclose that BGI is to act in a sub-agency capacity. The 
Primary Lending Agreement will also set forth the basis and rate for 
the primary lending agent's compensation from the Client Plan for the 
performance of securities lending services and will authorize the 
primary lending agent to pay a portion of its fee, as the primary 
lending agent determines in its sole discretion, to any sub-agent(s) it 
retains (including BGI) pursuant to the authority granted under such 
agreement.
    Pursuant to its authority to appoint sub-agents, the primary 
lending agent will enter into a securities lending sub-agency agreement 
(Sub-Agency Agreement) with BGI under which the primary lending agent 
will retain and authorize BGI, as sub-agent, to lend securities of the 
primary lending agent's Client Plans, subject to the same terms and 
conditions specified in the Primary Lending Agreement. BGI represents 
that the Sub-Agency Agreement will contain provisions that are in 
substance comparable to those described above in connection with a 
Client Agreement in situations where BGI is the primary lending agent. 
BGI will make in the Sub-Agency Agreement the same representations 
described above in paragraph 7 with respect to arm's length dealing 
with the Borrowers. The Sub-Agency Agreement will also set forth the 
basis and rate for BGI's compensation to be paid by the primary lending 
agent.
    10. In all cases, BGI will maintain transactional and market 
records sufficient to assure compliance with its representation that 
all loans to the Borrowers are effected at arm's length terms, and such 
terms will be in no case less favorable to the Client Plan than the 
pricing established according to the schedule described in paragraph 
16. Such records will be made available upon reasonable request and 
without charge to the Client Plan fiduciary, who (other than in the 
case of a Barclays Plan) is independent of BGI and the Borrowers, in 
the manner and format agreed to by the Client Plan fiduciary and BGI.
    11. A Lender, in the case of a Separate Account, will be permitted 
to terminate the lending agency or sub-agency arrangement at any time 
without penalty, on five business days notice. A Client Plan in the 
case of a Commingled Fund will be permitted to terminate its 
participation in the lending arrangement by terminating its investment 
in the Commingled Fund no later than 35 days after the notice of 
termination of participation is received, without penalty to the Plan, 
in accordance with the terms of the Commingled Fund. Upon a 
termination, the Borrower will be contractually obligated to return 
securities identical to the borrowed securities (or the equivalent 
thereof in the event of reorganization, recapitalization or merger of 
the issuer of the borrowed securities) to the Lender within one of the 
following time periods, whichever is least: The customary delivery 
period for such securities, five business days of written notification 
of termination, or the time negotiated for such delivery by the Client 
Plan, in a Separate Account, or by BGI, as lending agent to a 
Commingled Fund, and the Borrowers.
    Because the securities must be returned before the end of the 
customary delivery period for sale of

[[Page 9088]]

those securities, BGI need not wait to sell the securities as long as 
it has the contractual assurance that they will be returned before 
settlement. Consequently, the lending has no impact on the investment 
decision to sell or its implementation and, therefore, no effect on 
tracking error.
    12. The Lender, or another custodian designated to act on its 
behalf, will receive collateral from each Borrower by physical 
delivery, book entry in a U.S. securities depository, wire transfer or 
similar means by the close of business on or before the day the loaned 
securities are delivered to the Borrower. All collateral will be 
received by the Lender or other custodian, in the United States. The 
collateral will consist of U.S. currency, securities issued or 
guaranteed by the U.S. Government or its agencies or instrumentalities, 
or irrevocable bank letters of credit issued by a U.S. bank other than 
Barclays (or any subsequent parent corporation of BGI, BC NY, BC UK, 
and BGIS) or an affiliate thereof, or any combination thereof, or other 
collateral permitted under PTE 81-6 (as amended or superseded). The 
collateral will be held on behalf of a Client Plan in a depository 
account separate from the Borrower.
    The market value (or, in the case of a letter of credit, a stated 
amount) of the collateral on the close of business on the day preceding 
the day of the loan will be at least 102 percent of the market value of 
the loaned securities. The Loan Agreement will give the Lender a 
continuing security interest in and a lien on or title to the 
collateral. BGI will monitor the level of the collateral daily. If the 
market value of the collateral, on the close of trading on a business 
day, is less than 100 percent (or such greater percentage as agreed to 
by the parties) of the market value of the loaned securities at the 
close of business on that day, BGI will require the Borrowers to 
deliver by the close of business on the next day sufficient additional 
collateral to bring the level back to at least 102 percent.
    13. Prior to making any loans under the Loan Agreement from 
Separate Accounts, the Borrowers will furnish their most recent 
available audited and unaudited financial statements to BGI, which will 
provide such statements to the Client Plan invested in such Separate 
Account before the authorizing fiduciary of the Client Plan is asked to 
approve the proposed lending to the Borrowers. The terms of the Loan 
Agreement will contain a requirement that the Borrowers must give 
prompt notice to BGI at the time of any loan of any material adverse 
change in their financial condition since the date of the most recently 
furnished financial statements. If any such material adverse change has 
taken place, BGI will request that the independent fiduciary of the 
Client Plan, if invested in a Separate Account, approve continuation of 
the lending arrangement in view of the changed financial conditions.
    In addition, upon request, BGI will provide the audited financial 
statements of the applicable Borrowers to Client Plans invested in 
Commingled Funds on an annual basis.
    14. In the case of Client Plans currently invested in Commingled 
Funds, approval of lending to the Borrowers will be accomplished by the 
following special procedure for Commingled Funds. The information 
described in paragraph 8 will be furnished by BGI as lending fiduciary 
to an independent fiduciary of each Client Plan invested in Commingled 
Funds not less than 30 days prior to implementation of the lending 
arrangement, and thereafter, upon the reasonable request of the 
authorizing fiduciary. In the event any such authorizing fiduciary 
submits a notice in writing within the 30-day period to BGI, in its 
capacity as the lending fiduciary, objecting to the implementation of 
or continuation of the lending arrangement with the Borrowers, the Plan 
on whose behalf the objection was tendered will be given the 
opportunity to terminate its investment in the Commingled Fund, without 
penalty to the Plan, no later than 35 days after the notice of 
withdrawal is received. In the case of a Plan that elects to withdraw 
pursuant to the foregoing, such withdrawal shall be effected prior to 
the implementation of the arrangement; but an existing arrangement need 
not be discontinued by reason of a Plan electing to withdraw. In the 
case of a Plan whose assets are proposed to be invested in a Commingled 
Fund subsequent to the implementation of the arrangement, the Plan's 
investment in the Commingled Fund shall be authorized in the manner 
described in paragraph 8.
    In the case of loans made by Commingled Funds, upon notice by the 
Borrower to BGI of a material adverse change in its financial 
conditions, BGI will make a decision whether to terminate existing 
loans and whether to continue making additional loans to the Borrower, 
using the same standards of credit analysis BGI would use in evaluating 
unrelated borrowers. In the event the Client Plan invested in a 
Commingled Fund has any objection to the continuation of lending to a 
Borrower, it may withdraw from the fund as described above.
    15. With respect to material changes in the lending arrangement 
with the Borrowers after approval by Client Plans, BGI will obtain 
approval from Client Plans (whether in Separate Accounts or Commingled 
Funds) prior to implementation of any such change. For those Client 
Plans invested in Commingled Funds, approval of the proposed material 
change will be by the procedure described in paragraph 14.
    16. In return for lending securities, the Lender either will 
receive a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan, or will have the opportunity 
to derive compensation through the investment of cash collateral. Under 
such circumstances, the Lender may pay a loan rebate or similar fee to 
the Borrowers, if such fee is not greater than the fee the Lender would 
pay in a comparable arm's length transaction with an unrelated party.
    In this regard, each time a Lender loans securities to a Borrower 
pursuant to the Loan Agreement, BGI will reflect in its records the 
material terms of the loan, including the securities to be loaned, the 
required level of collateral, and the fee or rebate payable. The fee or 
rebate payable for each loan will be effected at arm's-length terms, 
and such terms will be in no case less favorable to the Client Plan 
than the pricing established according to the schedule described below. 
The rebate rates, which are established for cash collateralized loans 
made by the Lender, will take into account the potential demand for the 
loaned securities, the applicable benchmark cost of funds (typically 
the U.S. Federal Funds rate established by the Federal Reserve System), 
the overnight ``repo'' rate, or the like and the anticipated investment 
returns on the investment of cash collateral. Further, the lending fees 
with respect to loans collateralized by other than cash will be set 
daily to reflect conditions as influenced by potential market demand. 
The applicants represent that the securities lending agent fee paid to 
BGI will comply with the requirements of PTE 82-63.
    BGI will establish each day a written schedule of lending fees \29\ 
and rebate

[[Page 9089]]

rates \30\ with respect to new loans of designated classes of 
securities, such as U.S. Government securities, U.S. equities and 
corporate bonds, international fixed income securities and non-U.S. 
equities, in order to assure uniformity of treatment among borrowers 
and to limit the discretion BGI would have in negotiating securities 
loans to Borrowers. Loans to all borrowers of a given security on that 
day will be made at rates or lending fees on the relevant daily 
schedules or at rates or lending fees which are more advantageous to 
the Lenders. The applicants represent that in no case will loans be 
made to Borrowers at rates or lending fees that are less advantageous 
to the Lenders than those on the relevant schedules. In addition, it is 
represented that the method of determining the daily securities lending 
rates (fees and rebates) will be disclosed to each Client Plan, whether 
in Separate Accounts or Commingled Funds. For those Client Plans 
invested in Commingled Funds, disclosure will be by the special 
procedure described in paragraph 14.
---------------------------------------------------------------------------

    \29\ BGI will adopt minimum daily lending fees for non-cash 
collateral payable by Borrowers to BGI on behalf of a Lender. 
Separate minimum daily lending fees will be established with respect 
to loans of designated classes of securities. With respect to each 
designated class of securities, the minimum lending fee will be 
stated as a percentage of the principal value of the loaned 
securities. BGI will submit the method for determining such minimum 
daily lending fees to an authorizing fiduciary of the Client Plan, 
in the case of a Separate Account, for approval before initially 
lending any securities to Borrowers on behalf of such Client Plan. 
BGI will submit the method for determining such minimum daily 
lending fees to an authorizing fiduciary of each Client Plan 
involved in or planning to invest in a Commingled Fund pursuant to 
the procedure described in paragraph 14, above.
    \30\ Separate maximum daily rebate rates will be established 
with respect to loans of securities within the designated classes 
identified above.
---------------------------------------------------------------------------

    17. When a loan of securities by a Lender is collateralized with 
cash, BGI will transfer such cash to the trust or other investment 
vehicle for investment that the Client Plan has authorized, and will 
rebate a portion of the earnings on such collateral to the appropriate 
Borrower as agreed to in the securities lending agreement between 
Lender and the Borrower. BGI will share with the Client Plan the income 
earned on the investment of cash collateral for BGI's provision of 
lending services, which will reduce the income earned by the Client 
Plans (whether in a Commingled Fund or Separate Account) from the 
lending of securities. BGI may receive a separate management fee for 
providing cash collateral investment services. Where collateral other 
than cash is used, the Borrower will pay a fee to the Lender based on 
the value of the loaned securities. These fees will also be shared 
between the Client Plans (whether in a Commingled Fund or Separate 
Account) and BGI. Any income or fees shared will be net of cash 
collateral management fees and borrower rebate fees. The sharing of 
income and fees will be in accordance with the arrangements authorized 
by the Client Plan in advance of commencement of the lending program.
    An authorizing fiduciary of the Client Plan also may authorize BGI 
to act as investment manager, custodian, and/or directed trustee of the 
Client Plan's Index or Model-Driven portfolio of securities available 
for lending whether in a Separate Account or Commingled Fund, and to 
receive a reasonable fee for such services.
    18. BGI will negotiate rebate rates for cash collateral payable to 
each borrower, including Borrowers, on behalf of a Lender. The fees or 
rebate rates negotiated will be effected at arm's length terms, and 
such terms will be in no case less favorable to the Client Plan than 
the pricing established according to the schedule described in 
paragraph 16.
    With respect to any loan to a Borrower, BGI, at the inception of 
such loan, will not negotiate and agree to a rebate rate with respect 
to such loan which it expects would produce a zero or negative return 
to the Lender over the life of the loan (assuming no default on the 
investments made by BGI where it has investment discretion over the 
cash collateral or on investments expected to be made by the Client 
Plan's designee, where BGI does not have investment discretion over 
cash collateral).
    19. BGI may, depending on market conditions, reduce the lending fee 
or increase the rebate rate on any outstanding loan to a Borrower, or 
any other borrower. Except in the case of a change resulting from a 
change in the value of any third party independent index with respect 
to which the fee or rebate is calculated, such reduction in lending fee 
or increase in rebate shall not establish a lending fee below the 
minimum or a rebate above the maximum set in the schedule of fees and 
rebates described in paragraph 16. If BGI reduces the lending fee or 
increases the rebate rate on any outstanding loan from a Separate 
Account to a Borrower (except in the case of a change resulting from a 
change in the value of any third party independent index with respect 
to which the fee or rebate is calculated), BGI, by the close of 
business on the date of such adjustment, will provide the independent 
fiduciary of the Client Plan invested in the Separate Account with 
notice (including by electronic means) that it has reduced such fee or 
increased the rebate rate to such Borrower and that the Client Plan may 
terminate such loan at any time.
    20. Except as otherwise expressly provided in the exemption, the 
applicants represent that all procedures regarding the securities 
lending activities will, at a minimum, conform to the applicable 
provisions of PTE 81-6 and PTE 82-63, both as amended or superseded, as 
well as to applicable securities laws of the United States and the 
United Kingdom.
    21. Barclays agrees to indemnify and hold harmless the Client Plans 
in the United States (including the sponsor and fiduciaries of such 
Client Plans) for any transactions covered by this exemption with the 
Borrower so that the Lender does not have to litigate, in the case of 
BC UK, in a foreign jurisdiction, nor sue to realize on the 
indemnification. Such indemnification will be against any and all 
reasonably foreseeable losses, costs and expenses (including attorneys 
fees) which the Lender may incur or suffer arising from any 
impermissible use by a Borrower of the loaned securities, from an event 
of default arising from the failure of a Borrower to deliver loaned 
securities when due in accordance with the provisions of the Loan 
Agreement or from a Borrower's other failure to comply with the terms 
of the Loan Agreement, except to the extent that such losses are caused 
by the Client Plan's own negligence. The applicable Borrower will also 
be liable to the Lender for breach of contract for any failure by such 
Borrower to deliver loaned securities when due or to otherwise comply 
with the terms of the Loan Agreement.
    If any event of default occurs to the extent that (i) liquidation 
of the pledged collateral or (ii) additional cash received from the 
Borrower does not provide sufficient funds on a timely basis, BGI, as 
securities lending agent, promptly and at its own expense, shall 
purchase or cause to be purchased for the account of the Lender, 
securities identical to the borrowed securities (or their equivalent). 
If the collateral and any such additional cash is insufficient to 
accomplish such purchase, Barclays, pursuant to the indemnification, 
will indemnify the Lender for any shortfall in the collateral plus 
interest on such amount and any transaction costs incurred (including 
attorneys' fees). Alternatively, if such replacement securities cannot 
be obtained in the open market, Barclays will pay the Lender the 
difference in U.S. dollars between the market value of the loaned 
securities and the market value of the related collateral as determined 
on the date of the Borrower's breach of the obligation to return the 
securities pursuant to the applicable Loan Agreement.
    The ``market value'' of any securities listed on a national 
securities exchange

[[Page 9090]]

in the United States will be the last sales price on such exchange on 
the preceding business day or, if there is no sale on that day, the 
last sale price on the next preceding business day on which there is a 
sale on such exchange, as quoted on the consolidated tape. If the 
principal market for securities to be valued is the over-the-counter 
market, the securities' market value will be the closing sale price as 
quoted on the National Association of Securities Dealers Automated 
Quotation System (NASDAQ) on the preceding business day or the opening 
price on such business day if the securities are issues for which last 
sale prices are not quoted on NASDAQ. If the securities to be valued 
are not quoted on NASDAQ, their market value shall be the highest bid 
quotation appearing in The Wall Street Journal, National Quotation 
Bureau pink sheets, Salomon Brothers quotation sheets, quotation sheets 
of registered market makers and, if necessary, independent dealers' 
telephone quotations on the preceding business day. (In each case, if 
the relevant quotation does not exist on such day, then the relevant 
quotation on the next preceding business day in which there is such a 
quotation would be the market value.)
    22. The Lender will be entitled to receive the equivalent of all 
distributions made to holders of the borrowed securities during the 
term of the loan, including but not limited to, interest and dividends, 
shares of stock as a result of a stock split and rights to purchase 
additional securities, or other distributions during the loan 
period.\31\
---------------------------------------------------------------------------

    \31\ The applicants represent that dividends and other 
distributions on foreign securities payable to a Lender may be 
subject to foreign tax withholdings. Under these circumstances, the 
applicable Borrower, where necessary, will gross-up the in-lieu-of-
payment (in respect of such dividend or distribution it makes) to 
the Lender so that the Lender will receive back what it otherwise 
would have received (by way of dividend or distribution) had it not 
loaned the securities.
---------------------------------------------------------------------------

    23. Further, prior to a Client Plan's authorization of a securities 
lending program, BGI will provide a Plan fiduciary with copies of the 
notice of proposed exemption and, if granted, the final exemption.
    24. In order to provide the means for monitoring lending activity 
in Separate Accounts and Commingled Funds, a quarterly report will be 
provided to an auditor selected by BGI who is independent of BGI (but 
may or may not be independent of the Client Plan). This report will 
show the fees or rebates (as applicable) on loans to Borrowers compared 
with loans to other borrowers, as well as the level of collateral on 
the loans. The applicants represent that the quarterly report will 
show, on a daily basis, the market value of all outstanding security 
loans to Borrowers and to other borrowers as compared to the total 
collateral held for both categories of loans. Further, the quarterly 
report will state the daily fees where collateral other than cash is 
utilized and will specify the details used to establish the daily 
rebate payable to all borrowers where cash is used as collateral. The 
quarterly report also will state, on a daily basis, the rates at which 
securities are loaned to Borrowers compared with those at which 
securities are loaned to other borrowers.
    The independent auditor will review the lending data on a quarterly 
basis and certify whether the loans have satisfied the criteria of this 
exemption, in that they appear no less favorable to the Separate 
Account or Commingled Fund than the pricing established in the schedule 
described in paragraph 16. Client Plans invested in Separate Accounts 
will receive both the quarterly report and the auditor's certification 
as described above. Client Plans invested in Commingled Funds will 
receive the auditor's certification and, upon request, will receive the 
quarterly report.
    In the event an authorizing fiduciary of a Plan invested in a 
Commingled Fund submits a notice in writing to BGI objecting to the 
continuation of the lending program to the Borrowers, the Plan on whose 
behalf the objection was tendered will be given the opportunity to 
terminate its investment in the Commingled Fund, without penalty to the 
Plan, no later than 35 days after the notice of withdrawal is received.
    25. To ensure that any lending of securities to a Borrower will be 
monitored by an authorizing fiduciary of above average experience and 
sophistication in matters of this kind, only Client Plans with total 
assets having an aggregate market value of at least $50 million will be 
permitted to lend securities to the Borrowers. However, in the case of 
two or more Client Plans which are maintained by the same employer, 
controlled group of corporations or employee organization, whose assets 
are commingled for investment purposes in a single master trust or any 
other entity the assets of which are ``plan assets'' under 29 CFR 
2510.3-101 (the Plan Asset Regulation), which entity is engaged in 
securities lending arrangement with BGI, the foregoing $50 million 
requirement will be deemed satisfied if such trust or other entity has 
aggregate assets which are in excess of $50 million; provided that if 
the fiduciary responsible for making the investment decision on behalf 
of such master trust or other entity is not the employer or an 
affiliate of the employer, such fiduciary must have total assets under 
its management and control, exclusive of the $50 million threshold 
amount attributable to plan investment in the commingled entity, which 
are in excess of $100 million. In the case of two or more Client Plans 
which are not maintained by the same employer, controlled group of 
corporations or employee organization, whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity is engaged in securities lending arrangements with BGI, 
the foregoing $50 million requirement will be satisfied if such trust 
or other entity has aggregate assets which are in excess of $50 million 
(excluding the assets of any Client Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity must have full 
investment responsibility with respect to plan assets invested therein, 
and must have total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million. In 
addition, none of the entities described above may be formed for the 
sole purpose of making loans of securities.
    26. With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders by BGI will be to borrowers unrelated to BGI. Thus, 
the competitiveness of the loan fee will be continuously tested in the 
marketplace. Accordingly, the applicants believe that loans to 
Borrowers should result in competitive fee income to the Lenders.
    27. With respect to foreign Borrowers, the applicants represent 
that BC UK is regulated by the UK SFA and is, therefore, authorized to 
conduct an investment banking business in and from the United Kingdom 
as a broker-dealer. The proposed exemption will be applicable only to 
transactions effected by BC UK which is registered as a broker-dealer 
with the SFA and in compliance with Rule 15a-6 under the

[[Page 9091]]

Securities Exchange Act of 1934 (Rule 15a-6). The applicants represent 
that the role of a broker-dealer in a principal transaction in the 
United Kingdom is substantially identical to that of a broker-dealer in 
a principal transaction in the United States. The applicants further 
represent that registration of a broker-dealer with the SFA is 
equivalent to registration of a broker-dealer with the SEC under the 
1934 Act. The applicants maintain that the SFA has promulgated rules 
for broker-dealers which are equivalent to SEC rules relating to 
registration requirements, minimum capitalization, reporting 
requirements, periodic examinations, fund segregation, client 
protection, and enforcement. The applicants represent that the rules 
and regulations set forth by the SFA and the SEC share a common 
objective: the protection of the investor by the regulation of 
securities markets. The applicants explain that under SFA rules, a 
person who manages investments or gives advice with respect to 
investments must be registered as a ``registered representative.'' If a 
person is not a registered representative and, as part of his duties, 
makes commitments in market dealings or transactions, that person must 
be registered as a ``registered trader.'' The applicants represent that 
the SFA rules require each firm which employs registered 
representatives or registered traders to have positive tangible net 
worth and to be able to meet its obligations as they fall due, and that 
the SFA rules set forth comprehensive financial resource and reporting/
disclosure rules regarding capital adequacy. In addition to 
demonstration of capital adequacy, the applicants state that the SFA 
rules impose reporting/disclosure requirements on broker-dealers with 
respect to risk management, internal controls, and all records relating 
to a counterparty, and that all records must be produced at the request 
of the SFA at any time. The applicants state that SFA's registration 
requirements for broker-dealers are backed up by potential fines and 
penalties and rules which establish a comprehensive disciplinary 
system.
    28. In addition to the protections afforded by registration with 
the SFA, the applicants represent that BC UK will comply with the 
applicable provisions of Rule 15a-6 (described below). The applicants 
represent that compliance by BC UK with the requirements of Rule 15a-6 
will offer additional protections in lieu of registration with the SEC. 
The applicants represent that Rule 15a-6 provides an exemption from 
U.S. broker-dealer registration for a foreign broker-dealer that 
induces or attempts to induce the purchase or sale of any security 
(including over-the-counter equity and debt options) by a ``U.S. 
institutional investor'' or a ``major U.S. institutional investor,'' 
provided that the foreign broker-dealer, among other things, enters 
into these transactions through a U.S. registered broker-dealer 
intermediary. The term ``U.S. institutional investor'', as defined in 
Rule 15a-6(b)(7), includes an employee benefit plan within the meaning 
of the Act if (a) the investment decision is made by a plan fiduciary, 
as defined in section 3(21) of Act, which is either a bank, savings and 
loan association, insurance company or registered investment advisor, 
(b) the employee benefit plan has total assets in excess of $5,000,000, 
or (c) the employee benefit plan is a self-directed plan with 
investment decisions made solely by persons that are ``accredited 
investors'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities Act of 1933, as amended. The term ``major U.S. institutional 
investor'' is defined as a person that is a U.S. institutional investor 
that has, or has under management, total assets in excess of $100 
million, or is an investment adviser registered under section 203 of 
the Investment Advisers Act of 1940 that has total assets under 
management in excess of $100 million. The applicants represent that the 
intermediation of the U.S. registered broker-dealer imposes upon the 
foreign broker-dealer the requirement that the securities transaction 
be effected in accordance with a number of U.S. securities laws and 
regulations applicable to U.S. registered broker-dealers.
    The applicants represent that, under Rule 15a-6, a foreign broker-
dealer that induces or attempts to induce the purchase or sale of any 
security by a U.S. institutional or major U.S. institutional investor 
in accordance with 15a-6 must, among other things:
    a. Consent to service of process for any civil action brought by, 
or proceeding before, the SEC or any self-regulatory organization;
    b. Provide the SEC with any information or documents within its 
possession, custody or control, any testimony of any foreign associated 
persons,\32\ and any assistance in taking the evidence of other 
persons, wherever located, that the SEC requests and that relates to 
transactions effected pursuant to Rule 15a-6; and
---------------------------------------------------------------------------

    \32\ A foreign associated person is defined in Rule 15a-6(b)(2) 
as any natural person domiciled outside the United States who is an 
associated person, as defined in section 3(a)(18) of the 1934 Act, 
of the foreign broker or dealer, and who participates in the 
solicitation of a U.S. institutional investor or a major U.S. 
institutional investor under Rule 15a-6(a)(3).
---------------------------------------------------------------------------

    c. Rely on the U.S. registered broker-dealer through which the 
transactions with the U.S. institutional and major U.S. institutional 
investors are effected to (among other things):
    1. Effect the transactions, other than negotiating their terms;
    2. Issue all required confirmations and statements;
    3. As between the foreign broker-dealer and the U.S. registered 
broker-dealer, extend or arrange for the extension of credit in 
connection with the transactions;
    4. Maintain required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by 
Certain Exchange Members, Brokers and Dealers) of the 1934 Act;
    5. Receive, deliver and safeguard funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or major U.S. institutional investor in compliance with Rule 
15c3-3 of the 1934 Act (Customer Protection-Reserves and Custody of 
Securities); and
    6. Participate in all oral communications (e.g., telephone calls) 
between a foreign associated person and the U.S. institutional investor 
(other than a major U.S. institutional investor), and accompany the 
foreign associated person on all visits with both U.S. institutional 
and major U.S. institutional investors. By virtue of this 
participation, the U.S. registered broker-dealer would become 
responsible for the content of all these communications.
    All collateral will be maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit. All collateral will 
be held in the United States and BGI will maintain the situs of the 
Loan Agreements (evidencing the Lender's right to return of the loaned 
securities and the continuing interest in and lien on or title to the 
collateral) in the United States under an arrangement that complies 
with the indicia of ownership requirements under section 404(b) of the 
Act and the regulations promulgated under 29 CFR 2550.404(b)-1.
    Prior to a transaction involving a foreign Borrower, the foreign 
Borrower will (a) agree to submit to the jurisdiction of the courts of 
the United States; (b) agree to appoint a Process Agent for service of 
process in the United States, which may be an affiliate; (c) consent to 
service of process on the

[[Page 9092]]

Process Agent; and (d) agree that enforcement by a Client Plan of the 
indemnity provided by Barclays may occur in the United States Courts.
    29. In summary, the applicants represent that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    a. For each Client Plan, neither BGI nor any affiliate (except as 
expressly permitted in the exemption) will have or exercise 
discretionary authority or control with respect to the investment of 
the assets of Client Plans involved in the transaction or will render 
investment advice with respect to such assets, including decisions 
concerning a Client Plan's acquisition or disposition of securities 
available for loan, except to the extent that BGI exercises 
discretionary authority or control or renders investment advice in 
connection with an Index Fund or Model-Driven Fund managed by BGI in 
which Client Plans invest.
    b. Any arrangement for BGI to lend securities will be approved in 
advance by a Plan fiduciary who (except in the case of a Barclays Plan) 
is independent of BGI.
    c. The terms of each loan of securities by a Lender to a Borrower 
will be at least as favorable to such Separate Account or Commingled 
Fund as those of a comparable arm's length transaction between 
unrelated parties.
    d. Upon termination of a loan, the Borrowers will transfer 
securities identical to the borrowed securities (or the equivalent 
thereof) to the Lender within one of the following time periods, 
whichever is least: (1) The customary delivery period for such 
securities; (2) five business days; or (3) the time negotiated for such 
delivery by the Client Plan, in a Separate Account, or by BGI, as 
lending agent to a Commingled Fund, and the Borrowers.
    e. The Lender will receive from each Borrower collateral consisting 
of U.S. currency, securities issued or guaranteed by the United States 
Government or its agencies or instrumentalities, irrevocable bank 
letters of credit issued by a U.S. bank (other than Barclays Bank PLC 
or any subsequent parent corporation of BGI, BC NY, BC UK and BGIS, or 
an affiliate thereof, or any combination thereof) or other collateral 
permitted under PTE 81-6 (as amended or superseded), which will be held 
in a depository account separate from the Borrower.
    f. In return for lending securities, the Lender either will receive 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or will have the opportunity 
to derive compensation through the investment of cash collateral.
    g. Barclays agrees to indemnify and hold harmless the Client Plans 
in the United States (including the sponsor and fiduciaries of such 
Client Plans) for any transactions covered by this exemption with a 
Borrower so that the Client Plans do not have to litigate, in the case 
of BC UK, in a foreign jurisdiction nor sue to realize on the 
indemnification.
    h. All loans involving foreign Borrowers will involve Borrowers 
that are registered as broker-dealers subject to regulation by the SFA 
and that are in compliance with all applicable provisions of Rule 15a-
6.
    i. Prior to a transaction involving a foreign Borrower, the foreign 
Borrower will: agree to submit to the jurisdiction of the United 
States; agree to appoint a Process Agent in the United States; consent 
to service of process on the Process Agent; and agree that enforcement 
by a Client Plan of the indemnity provided by Barclays may occur in the 
United States courts.

FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department, 
telephone (202) 693-8540. (This is not a toll-free number).

Carl Mundy, Jr. Defined Benefit Plan (the Plan)

Located in Alexandria, Virginia

[Application No. D-11043]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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, 
August 10, 1990). If the exemption is granted, the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed 
contribution(s) (the Contribution(s)) to the Plan of shares (the 
Shares) of Schering-Plough Corporation (Schering-Plough) to be received 
annually by Carl Mundy, Jr. (Mr. Mundy), a disqualified person with 
respect to the Plan \33\ as compensation in the form of Shares in lieu 
of cash, provided that the following conditions are met:
---------------------------------------------------------------------------

    \33\ Since Mr. Mundy is a sole proprietor and the only 
participant in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
---------------------------------------------------------------------------

    (a) The Shares are valued at its fair market value at the time of 
each Contribution;
    (b) The Shares represent no more than 20% of the total assets of 
the Plan following each Contribution;
    (c) The Plan will not pay any commissions, costs or other expenses 
in connection with the Contributions;
    (d) Mr. Mundy, who is the only person affected by the transactions, 
believes that the transactions are appropriate for the Plan and desires 
that the transactions be consummated.

Summary of Facts and Representations

    1. The Plan is a defined benefit plan covering only Mr. Mundy, who 
is the Plan's sponsor, administrator and trustee. Mr. Mundy is a sole 
proprietor engaged in the business of being a member of the board of 
directors for several companies.
    2. Mr. Mundy's annual earned income derives principally from 
services rendered as a member of the board of directors of various 
corporations. In this regard, Mr. Mundy serves as a member of the board 
of directors of Schering-Plough. Thirty percent of his annual earned 
income is received from the receipt of the Shares in lieu of cash 
compensation. The Shares are valued by Schering-Plough on the day of 
the Contribution, reported to the Securities and Exchange Commission as 
a company stock transaction, and subsequently, to the IRS on form 1099 
as taxable, cash compensation.
    3. At the time of each Contribution, the Shares will represent no 
more than less than 20% of the Plan's assets. The Shares will be 
contributed in subsequent Plan years only to the extent that the fair 
market value of all the Shares in the Plan will not exceed 20% of the 
total value of the Plan's assets at the time of the Contribution.
    4. The applicant states that his Federal income tax deduction for 
the Contribution will not exceed the fair market value of the Shares at 
the time of the Contribution. In addition, the Plan will not incur any 
sales commissions or other expenses in connection with the 
Contributions.
    5. Mr. Mundy believes that the proposed exemption will enable Mr. 
Mundy to utilize earned compensation received in a form different than 
cash, but reported, treated, and taxed as cash, as a cash equivalent 
contribution to the Plan.
    6. Mr. Mundy represents that there is little chance of there being 
a Plan participant other than himself. However, in the future if there 
is a new employee. Mr. Mundy will establish a separate defined benefit 
plan for such employee containing provisions comparable to those 
contained in the Plan.

[[Page 9093]]

    7. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria of section 4975(c)(2) of 
the Code because:
    (a) The Shares will be valued at its fair market value at the time 
of each Contribution;
    (b) The Shares will represent no more than 20% of the total assets 
of the Plan following each Contribution;
    (c) The Plan will not pay any commissions, costs or other expenses 
in connection with the Contributions; and
    (d) Mr. Mundy, who is the only person affected by the transactions, 
believes that the transactions are appropriate for the Plan and desires 
that the transactions be consummated.
    Notice to Interested Parties: Because Mr. Mundy is the only 
participant in the IRA, it has been determined that there is no need to 
distribute the notice of proposed exemption (the Notice) to interested 
persons. Comments and requests for a hearing are due thirty (30) days 
after publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8540 (this is not a toll-free number).

HSBC Holdings plc

Located in London, England

[Exemption Application No.: D-11057]

Proposed Exemption

    The Department of Labor 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 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\34\ If the 
exemption is granted, HSBC Asset Management Americas, Inc. (AMUS), HSBC 
Asset Management Hong Kong, Ltd. (AMHK), HSBC Bank USA (Bank USA), and 
any current affiliate of HSBC Holdings plc (HSBC) that is eligible to 
serve or becomes eligible to serve as a qualified professional asset 
manager (a QPAM), as defined in Prohibited Transaction Class Exemption 
84-14 (PTCE 84-14),\35\ HSBC, itself, if in the future it becomes a 
QPAM, and any newly acquired or newly established affiliate of HSBC 
that is a QPAM or in the future becomes a QPAM, other than Republic New 
York Securities Corporation (RNYSC), shall not be precluded from 
functioning as a QPAM, pursuant to the terms and conditions of PTCE 84-
14, for the period beginning on December 17, 2001, and ending ten (10) 
years from the date of the publication of the final exemption in the 
Federal Register, solely because of a failure to satisfy Section I(g) 
of PTCE 84-14, as a result of an affiliation with RNYSC; provided that:
---------------------------------------------------------------------------

    \34\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
    \35\ 49 FR 9494 (March 13, 1984), as amended, 50 FR 41430 
(October 10, 1985).
---------------------------------------------------------------------------

    (a) RNYSC has not in the past acted, nor does it now act, nor will 
it act as a fiduciary with respect to any employee benefit plans 
subject to the Act;
    (b) This exemption is not applicable if HSBC and/or any successor 
or affiliate is affiliated with or becomes affiliated with any person 
or entity convicted of any of the crimes described in Section I(g) of 
PTCE 84-14, other than RNYSC; and
    (c) This exemption is not applicable if HSBC and/or any successor 
or affiliate is convicted of any of the crimes described in Section 
I(g) of PTCE 84-14, including any such crimes subsequently committed by 
RNYSC.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
for the period beginning on December 17, 2001, the date on which the 
U.S. Attorney for the Southern District of New York filed an 
Information and Government's Memorandum (the Information) outlining the 
charges against RNYSC and on which RNYSC entered a plea of guilty to 
the criminal charges set forth in the Information, and ending ten (10) 
years from date of the publication of the final exemption in the 
Federal Register.

Summary of Facts and Representations

    1. HSBC, a publicly owned holding company headquartered in London, 
England, is a U.K. corporation the shares of which are listed and 
traded on stock exchanges in New York, London, and Hong Kong. HSBC, 
together with its subsidiaries and affiliates, provides a wide range of 
banking and financial services in 79 countries. HSBC had consolidated 
assets, as of December 31, 2000, of approximately $673 billion.
    The exemption is requested for affiliates of HSBC, AMUS, AMHK, and 
Bank USA that currently qualify as QPAMs, as well as for any current 
affiliate of HSBC that now or in the future becomes eligible to serve 
as a QPAM, HSBC, itself, if it becomes a QPAM, and any newly acquired 
or newly established affiliate of HSBC that is a QPAM or in the future 
becomes a QPAM (collectively, the Applicants), other than RNYSC.
    One of the Applicants, Bank USA, an affiliate of HSBC, located in 
Buffalo, New York, currently conducts business as a QPAM in compliance 
with the requirements of PTCE 84-14 and other applicable exemptions. 
Bank USA is a New York state-chartered banking corporation and the 
principal U.S. bank subsidiary of HSBC. As such, Bank USA is subject to 
regulation and supervision by the Federal Reserve Bank of New York 
(FRBNY) and the New York State Banking Department (NYSBD). Bank USA has 
equity capital in excess of $1,000,000 and is a bank as defined in 
section 202(a)(2) of the Investment Advisers Act of 1940 (the Advisers 
Act). As such, Bank USA is subject to the anti-fraud provisions of the 
Advisers Act, as well relevant state law. Bank USA has approximately 
$7.1 billion in assets under management of which approximately $448 
million can be attributed to business with plans subject to the Act. 
Accordingly, the Applicants represent that Bank USA qualifies as a 
QPAM, pursuant to section V(a)(1) of PTCE 84-14.
    Two other Applicants, AMUS and AMHK are corporations organized, 
respectively, under the laws of the state of New York and the Peoples 
Republic of China. AMUS maintains offices on Fifth Avenue in New York, 
NY, while AMHK is located in Hong Kong. Both AMUS and AMHK are 
indirectly owned by HSBC and are investment advisers registered under 
the Advisers Act. As such, both are subject to the jurisdiction of the 
Securities and Exchange Commission (the SEC) and to the substantive 
requirements of the Advisers Act. In this regard, AMUS and AMHK must 
make annual disclosure filings with the SEC and are subject to 
unannounced audits by the SEC to ensure compliance with the 
requirements of the Advisers Act.
    As of December 31, 2001, AMUS and AMHK have total assets under 
management and control well in excess of $50,000,000 ($8.5 billion and 
$13.5 billion, respectively). It is represented that both AMUS and AMHK 
are each currently qualified to serve as a QPAM.\36\
---------------------------------------------------------------------------

    \36\ The Department expresses no opinion as to whether AMUS, 
AMHK, or Bank USA qualify as a QPAM for purposes of PTCE 84-14.
---------------------------------------------------------------------------

    2. The Applicants have requested the proposed exemption apply with 
respect to the following employee benefit plans for which either AMUS 
or AMHK currently serve as investment managers: (i) The National Fuel 
and Gas Company Employee Thrift Plan--1996; (ii) The National Fuel and 
Gas Company Employee Thrift Plan--2002; (iii) The ITT Master Retirement 
Trust; and (iv) The Northrop Employee Benefit Plan.\37\

[[Page 9094]]

The Applicants have also requested that the proposed exemption apply to 
any employee benefit plans for which the Applicants in the future serve 
as investment managers but which could not definitely be identified at 
the time the application was filed. The employee benefit plans for 
which the Applicants now or in the future serve as investment managers 
are referred to herein, collectively, as the Plan Clients. It is 
represented that consistent with the requirements of PTCE 84-14, a 
fiduciary independent of the Applicants is or will be involved in the 
appointment of any of the Applicants to serve as a QPAM with respect to 
the assets of any of the Plan Clients that are or will be affected by 
this proposed exemption.
---------------------------------------------------------------------------

    \37\ In their application for exemption, the Applicants also 
requested relief for transactions involving certain employee benefit 
plans sponsored by the Applicant and managed in-house (the In-House 
ERISA Plan Clients) and certain collective investment funds managed 
by Bank USA (the ERISA Collective Investment Fund Clients). 
Subsequently, in a letter dated February 4, 2002, the Applicants 
withdrew their request for relief for the In-House ERISA Plan 
Clients and the ERISA Collective Investment Fund Clients. In the 
case of the In-House ERISA Plan Clients, the Applicants represent 
that they will rely on the terms of Prohibited Transaction Class 
Exemption 96-23 for party in interest in-house transactions. In the 
case of the ERISA Collective Investment Fund Clients, the Applicants 
represent that they will rely on the terms of Prohibited Transaction 
Class Exemption 91-38, regarding transactions involving bank 
collective investment funds.
    The Department expresses no opinion as to whether the Applicants 
satisfy the requirements of these class exemptions.
---------------------------------------------------------------------------

    3. Beginning in 1995 and continuing over a period of four (4) 
years, RNYSC allegedly engaged in certain wrongful conduct. The conduct 
arose out of the involvement of the Futures Division of RNYSC with 
certain of its customers which were various special purpose entities 
and out of the involvement of the Futures Division of RNYSC with the 
founder and chairman of these entities, Martin Armstrong (Mr. 
Armstrong). It is alleged that Mr. Armstrong, through such entities, 
issued promissory notes with a face value of approximately $3 billion 
which were sold to certain Japanese investors (the Japanese Investors). 
The proceeds of such sales were deposited in certain custodial accounts 
(the Accounts) maintained at the Futures Division of RNYSC. Marketing 
materials provided to the Japanese Investors allegedly contained 
misrepresentations or misleading statements concerning the investment 
program and how such investors' money would be held. In addition, at 
least some the Japanese Investors were allegedly provided by Mr. 
Armstrong with letters issued by employees of RNYSC on RNYSC letterhead 
that substantially overstated the net asset value of the balances in 
the Accounts.
    In late August 1999, while in the process of obtaining approval to 
acquire RNYC, HSBC was informed by RNYC that the Financial Supervisory 
Agency (FSA) of Japan had launched an investigation into the Tokyo 
branch of one of Mr. Armstrong's affiliated companies. On August 18, 
1999, RNYSC informed HSBC that it had begun an internal investigation 
of the Accounts based on receipt of the notice from the FSA. It is 
represented that HSBC immediately notified the staff of the agencies 
whose approval of the acquisition was required, that it would await the 
results of RNYC's internal investigation before deciding whether to 
proceed with the proposed acquisition.
    On September 1, 1999, when U.S. authorities seized the Accounts, 
approximately $49 million remained in those Accounts and approximately 
$1 billion in face value of notes were outstanding. On September 13, 
1999, Mr. Armstrong was charged with mail and wire fraud.
    Before learning of the involvement of the Futures Division of RNYSC 
with Mr. Armstrong and his affiliated companies, it is represented HSBC 
had performed substantial regulatory and corporate due diligence of 
RNYC and its subsidiaries. It is represented that this due diligence 
revealed nothing regarding RNYSC's wrongful conduct. After learning of 
such misconduct, HSBC performed additional due diligence on the 
operations of RNYC with a view to satisfying itself that there were no 
other matters which might cause it to reconsider the proposed 
acquisition of RNYC.
    These steps were designed by HSBC to satisfy itself that there was 
no systemic breakdown at RNYC that might have led to serious exposures 
to risks in other business lines or that could not be prospectively 
cured to HSBC's satisfaction with the introduction of HSBC's internal 
controls following the acquisition. In this regard, HSBC arranged for, 
and evaluated the results of several reviews of the worldwide 
operations of RNYC, all of which were meant to consider the 
compatibility of the operations of RNYC with those of HSBC. This due 
diligence included reviews of certain of RNYC's non-U.S. operations, 
including its relationships with hedge funds, and various of its U.S. 
businesses, including its precious metals business, retail brokerage 
operations, and private banking activities. HSBC also reviewed certain 
of RNYSC's branch office operations, policies and procedures, including 
reports from its subsidiary bank's internal auditors. Based on the 
results of these reviews, along with RNYC's report on its internal 
investigation, senior management concluded that, aside from the conduct 
of RNYSC in connection with the misconduct of the Futures Division of 
RNYSC, the operations of RNYC and its affiliates and subsidiaries were 
otherwise sound. Therefore, HSBC with the approval of the Federal 
Reserve Board, the FRBNY and the NYSBD, proceeded with the acquisition.
    On December 31, 1999, HSBC acquired all of the outstanding shares 
of Republic New York Corporation (RNYC), the then parent holding 
company of Republic National Bank of New York (Republic Bank) and 
numerous other subsidiaries, including RNYSC. Immediately following the 
acquisition, the Republic Bank was merged with Bank USA (formerly, the 
Marine Midland Bank). HSBC also acquired at the same time the 
outstanding shares that were not already owned by RNYC of Safra 
Republic Holdings SA, a Luxemburg holding company and parent of various 
European private banking operations.
    4. On December 17, 2001, the United States Attorney filed the 
Information in the United States District Court for the Southern 
District of New York (the Court) alleging that RNYSC had engaged in 
conspiracy in violation of 18 U.S.C. 371 and securities fraud in 
violation of 15 U.S.C. 78j(b) and 78ff. On the same date, RNYSC entered 
a plea of guilty to the charges in the Information, pursuant to a 
written cooperation and plea agreement (the Plea Agreement). In the 
Plea Agreement, RNYSC agreed to the entry of a restitution order 
totaling in excess of approximately $600 million to compensate certain 
of the Japanese Investors. Pursuant to the terms of the Plea Agreement, 
HSBC USA Inc. (HSBC USA), RNYSC's parent company and an indirect 
wholly-owned subsidiary of HSBC, also agreed to compensate the Japanese 
Investors to the extent that the amount of the restitution exceeds the 
capital of RNYSC. In exchange for the payments by RNYSC and HSBC USA, 
the Japanese Investors opting to receive restitution agreed to dismiss 
their pending civil lawsuits.
    As a result of the events leading to the Plea Agreement, on 
December 17, 2001, the same date on which the Information was filed 
with the Court, the Commodity Futures Trading Commission (CFTC) entered 
an administrative order and simultaneously settled an enforcement 
action against RNYSC alleging violations of the Commodity Exchange Act, 
as amended. Pursuant to the settlement with the CFTC, RNYSC's 
registrations as a Futures Commissions Merchant and as a Commodity 
Trading

[[Page 9095]]

Advisor were revoked. Further, among other things, RNYSC was ordered to 
pay a civil money penalty in the amount of $5 million.
    Also, as a result of the events leading to the Information and the 
Plea Agreement on December 17, 2001, the SEC entered an administrative 
order and simultaneously settled an enforcement action against RNYSC 
alleging violations of the Securities Act of 1933, as amended, and the 
Securities Exchange Act of 1934, as amended. Pursuant to the settlement 
with the SEC, RNYSC registration as a broker dealer was revoked. On 
December 17, 2001, HSBC and certain of its subsidiaries and affiliates, 
as a result of their affiliation with RNYSC, filed an application with 
the SEC for a temporary and permanent order exempting them from section 
9(a) of the Investment Company Act of 1940, pursuant to section 9(2) of 
such act. The SEC granted the temporary order on December 17, 2001, and 
the permanent order on January 14, 2002.
    5. The Applicants have requested that the proposed exemption, if 
granted, would permit each of them to continue to function as a QPAM, 
pursuant to the terms and conditions of PTCE 84-14. PTCE 84-14, in 
general, permits various parties in interest with respect to an 
employee benefit plan to engage in certain transactions involving plan 
assets, if, among other conditions, the assets are managed by a QPAM 
who is independent and who meets specified financial standards and 
other conditions. In this regard, the requested exemption would apply 
to a full range of transactions that can be executed by investment 
managers which qualify as QPAMS.
    6. The Applicants represent that it would not be uncommon for one 
of the Applicants, as a fiduciary for one of the Plan Clients, to 
engage in a transaction that involves a party in interest, as defined 
under section 3(14) of the Act. Although such parties in interest can 
be identified when a specific transaction is contemplated, it is not 
practical for the Applicants to identify all the parties in interest 
that might be involved in transactions covered by the requested 
exemption, given the size, number, and changing identity of such Plan 
Clients, the large number of service providers (particularly financial 
institutions) that such Plan Clients engage, the breadth of the 
definition of ``party in interest'' under the Act, and the wide array 
of services offered by the Applicants. Accordingly, the Applicants have 
requested that the proposed exemption apply to all current and future 
parties in interest transactions with respect to the Plan Clients.
    The transactions with parties in interest for which relief has been 
requested by the Applicants include, but are not limited to sale and 
exchange transactions, derivative transactions, leasing and other real 
estate transactions, foreign currency trading transactions, and 
transactions involving the furnishing of goods, services, and 
facilities to an investment fund managed on a discretionary basis. It 
is represented that many of these types of transactions comprise an 
important component of the Applicants' business activities. It is 
represented that such transactions typically would have been evaluated 
by the Applicants, consistent with their fiduciary responsibilities 
under the Act, on the merits of such transactions, without regard to 
the involvement of a party in interest and that the terms of any 
material transactions with a party in interest are consistent with an 
arm's length standard at the time such terms are agreed to.\38\
---------------------------------------------------------------------------

    \38\ The Department notes that the general standards of 
fiduciary conduct under the Act would apply to the investment 
transactions permitted by this proposed exemption, and that 
satisfaction of the conditions of this proposed exemption should not 
be viewed as an endorsement of any particular investment by the 
Department. Section 404 of the Act requires, among other things, 
that a fiduciary discharge his duties with respect to a plan solely 
in the interest of the plan's participants and beneficiaries and in 
a prudent fashion. Accordingly, the manager or other plan fiduciary 
must act prudently with respect to the decision to enter into an 
investment transaction, as well as to the negotiation of the 
specific terms under which the plan will engage in such transaction. 
The Department further emphasizes that it expects a manager or other 
plan fiduciary to fully understand the benefits and risks associated 
with engaging in a specific transaction. In addition, such manager 
or plan fiduciary must be capable of periodically monitoring the 
investment, including any changes in the value of the investment and 
the creditworthiness of the issuer or other party to the 
transaction. Thus, in considering whether to enter into a 
transaction, a fiduciary should take into account its ability to 
provide adequate oversight of the particular investment.
---------------------------------------------------------------------------

    7. In all but one respect, the terms and conditions of the proposed 
exemption are identical to those, as set forth in PTCE 84-14. However, 
section I(g)of PTCE 84-14, requires that the QPAM and any affiliate of 
the QPAM must not have been convicted of certain felonies within a ten 
(10) year period preceding each transaction covered by the class 
exemption. The term, ``felony,'' as set forth in section I(g) of PTCE 
84-14 includes:

any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with 
a labor organization: any felony arising out of the conduct of the 
business of a broker, dealer, investment adviser, bank, insurance 
company, or fiduciary: income tax evasion: any felony involving the 
larceny, theft, robbery, extortion, forgery, counterfeiting, 
fraudulent concealment, embezzlement, fraudulent conversion, or 
misappropriation of funds or securities; conspiracy or attempt to 
commit any such crimes or a crime in which any of the foregoing 
crimes is an element: or any other crimes described in section 411 
of the Act.

    Section V(d) of PTCE 84-14, defines an ``affiliate'' of a person to 
mean--

    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person, (2) Any director of, relative of, or partner in, 
any such person, (3) Any corporation, partnership, trust, or 
unincorporated enterprise of which such person is an officer, 
director, or a 5 percent (5%) or more partner or owner, and (4) Any 
employee or officer of the person who --(A) Is a highly compensated 
employee (as defined in section 4975(e)(2)(H) of the Code) or 
officer (earning 10 percent (10%) or more of the yearly wages of 
such person), or (B) Has direct or indirect authority, 
responsibility or control regarding the custody, management, or 
disposition of plan assets.

    Section V(e) of PTCE 84-14 states that the term, ``control,'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual.
    8. Upon the acquisition of RNYC by HSBC in December 31, 1999, the 
Applicants became affiliated with RNYC and RNYSC, pursuant to the 
definition of ``affiliate,'' as set forth in section V(d) of PTCE 84-
14. Further, because RNYSC on December 17, 2001, entered a plea of 
guilty with respect to a felony, as described in section I(g) of PTCE 
84-14, the Applicants, as affiliates of RNYSC, as of that date, could 
no longer satisfy section I(g) of PTCE 84-14. Furthermore, as of the 
same date, any of the Applicants which had qualified as a QPAM (e.g., 
AMUS, AMHK, and Bank USA) were precluded from continuing to act as a 
QPAM. Accordingly, Applicants seek retroactive relief from the 
restrictions of section 406(a)(1)(A)-(D), and 406(b)(1), and 406(b)(2), 
of the Act, as well as the corresponding provisions of the Code. The 
Applicants further request that the exemption be effective as of 
December 17, 2001, the date on which RNYSC signed the Plea Agreement.
    9. The Applicants maintain that the requested exemption should be 
granted notwithstanding the guilty plea entered by RNYSC. In support of 
their position, the Applicants state that all of the activity covered 
by the RNYSC guilty plea occurred before RNYSC became affiliated with 
HSBC. It is represented that none of the acts underlying the guilty 
plea involved any investment management activities of the

[[Page 9096]]

Applicants, nor did such activity affect any assets of any plan subject 
to the Act.
    HSBC and its subsidiaries fully cooperated with the U.S. Attorney's 
Office, the SEC and the CFTC in their investigations in the matters 
that form the basis of the Information and were cited by the U.S. 
Attorney for their exemplary degree of cooperation.
    The former employees of RNYSC who were identified by RNYSC and HSBC 
as being responsible for the matter out of which the Plea Agreement 
arose were terminated in 1999 and 2000 and are no longer employed by 
RNYSC. Further, it is represented that the individuals responsible for 
RNYSC's misconduct are not now nor will they be employees of HSBC or 
any of its affiliates.
    The Applicants maintain that the charges related to the guilty plea 
in no way reflect upon the Applicants' ability to serve as independent 
investment managers. After the acquisition, RNYSC ceased active 
operations and is now a dormant corporation. All of the executives of 
RNYSC who were associated with RNYSC's misconduct were terminated in 
1999 and 2000. There are currently only two officers of RNYSC, neither 
of whom were connected with the activities that gave rise to RNYSC's 
guilty plea and both of whom were appointed by HSBC to administer the 
dormant operations of RNYSC. Neither RNYSC nor its employees will be 
involved in investment management activities relating to plans subject 
to the Act, nor will such parties influence or control the management 
or policies of the Applicants in the future.
    HSBC and its U.S. subsidiaries have implemented steps designed to 
prevent future violations of applicable laws and regulations similar to 
those that are the subject of the Information. In addition to winding 
down RNYSC, HSBC promptly brought RNYC and its subsidiaries under the 
rigorous policies and procedures, internal controls, audit procedures, 
and compliance regime that applies to all subsidiaries of HSBC world 
wide. It is represented that these measures are designed, among other 
things, to identify and prevent conduct similar to the criminal conduct 
which is the basis for the criminal charges set forth in the 
Information.
    10. The Applicants maintain that the requested exemption is 
protective of the rights of participants. In this regard, the proposed 
exemption contains safeguards similar to those provided in PTCE 84-14. 
Specifically, all of the conditions imposed by PTCE 84-14 would apply 
to this proposed exemption, except that section I(g) of PTCE 84-14 
would not apply to the violations giving rise to RNYSC's guilty plea. 
Further, it is represented that many of the Applicants' Plan Clients 
have significant assets, and hence have the sophistication and the 
access to resources necessary to monitor effectively the performance of 
such plans' investment managers.
    The proposed exemption also contains conditions, in addition to 
those imposed by PTCE 84-14, which are designed to ensure the presence 
of adequate safeguards to protect the interests of the Plan Clients 
against wrongdoers now and in the future. In this regard, the proposed 
exemption will not be applicable if any of the Applicants is convicted 
of or is affiliated with or becomes affiliated with any person or 
entity convicted of any of the crimes described in section I(g) of PTCE 
84-14, including any such crimes subsequently committed by RNYSC.
    11. The Applicants represent that the requested exemption is 
administratively feasible because the relief would not impose any 
administrative burdens either on the Applicants or on the Department 
which are not already imposed by PTCE 84-14. In the opinion of the 
Applicants, the administrative feasibility of the requested exemption 
is further demonstrated by the fact that the Department has previously 
granted other individual exemptions for a variety of similarly situated 
entities under substantially the same circumstances.\39\
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    \39\ In connection with the anticipated acquisition of the 
Bangkok Metropolitan Bank (BMB), the Applicants filed an application 
for an administrative exemption (D-10910) on June 16, 2000. The 
Department published in the Federal Register a proposed exemption on 
October 11, 2000, at 65 FR 60666. Subsequently, the Department 
published in the Federal Register a final exemption (Prohibited 
Transaction Exemption 2000-70) on December 21, 2000, at 65 F.R. 
80461. By letter dated, January 9, 2001, the Applicants informed the 
Department that the acquisition of BMB did not take place, because 
final terms acceptable to both parties could not be reached.
    Other cases similar to the proposed exemption include: (a) 
Bankers Trust Co., BT Alex Brown, Inc., and Deutsche Bank, 
Prohibited Transaction Exemption 99-29, 64 F.R. 40623 (July 22, 
1999); (b) PanAngora Management, Inc., Prohibited Transaction 
Exemption 97-10, 62 F.R. 4813 (Jan. 31, 1997); (c) American Express 
Company and Affiliates, Prohibited Transaction Exemption 94-34, 59 
F.R. 19247 (April 22, 1994); and (d) CS Holding and its Worldwide 
Affiliates, Prohibited Transaction Exemption 94-31, 59 FR 17590 
(April 13, 1994).
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    12. Without the requested relief, the Plan Clients may be forced to 
incur greater transaction costs and increased credit risks, if certain 
transactions are effected through unrelated parties, rather than 
through parties in interest.
    13. Denial of the exemption, in the opinion of the Applicants, 
would be unduly and disproportionately severe as applied to Plan 
Clients for which the Applicants serve as investment managers. In this 
regard, in the absence of the requested relief, the Applicants would be 
required to examine each transaction involving Plan Clients to 
determine whether it involves a party in interest, no matter how 
remote, with respect to such plans. Even with careful screening 
procedures for each transaction, the Plan Clients may have to forgo 
certain transactions in order to avoid the possibility of engaging 
inadvertently in a prohibited transaction. The Applicants point out 
that although individual exemptions may be obtained for transactions 
for which no existing class exemption applies, the application process 
can be expensive and time consuming. In the opinion of the Applicants, 
the proposed exemption, if granted, would eliminate both the potential 
for certain inadvertent prohibited transactions and avoid needless 
expenses and time delays.
    14. In summary, the Applicants represent that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code because, 
among other things:
    (a) no entity affiliated with HSBC, other than RNYSC, was involved 
in the conduct that formed the basis of the guilty plea;
    (b) RNYSC is now a dormant company and the employees of RNYSC who 
engaged in the conduct that formed the basis of the guilty plea are no 
longer employees of HSBC or its affiliates;
    (c) neither RNYSC nor its employees will be involved in investment 
management activities relating to plans subject to the Act, nor will 
such parties influence or control the management or policies of the 
Applicants in the future;
    (d) all of the conduct that formed the factual basis of the guilty 
plea occurred before the date that HSBC acquired control of RNYSC;
    (e) absent the proposed exemption, the Plan Clients may have to 
forgo attractive investment opportunities or incur greater transaction 
costs and risks;
    (f) AMUS and AMHK, as investment advisors registered under the 
Advisers Act, are subject to the jurisdiction of the SEC and the 
requirements of the Advisers Act;
    (g) Bank USA is a commercial bank, as defined in section 202(a)(2) 
of the Advisers Act, and is subject to the anti-fraud provisions of the 
Advisers Act, as well as relevant state law;
    (h) RNYSC will not be involved in investment management activities 
relating to the Plan Clients, nor will

[[Page 9097]]

RYNSC influence or control the management or policies of HBSC;
    (i) other than section I(g) of PTCE 84-14, the conditions of PTCE 
84-14 will apply to the transactions covered by this exemption, and 
such conditions are sufficient under the circumstances to ensure that 
the best interest of the Plan Clients and their participants are 
served;
    (j) the Plan Clients will be able to engage in a broader variety of 
investment opportunities;
    (k) RNYSC has not in the past acted, nor does it now act, nor will 
it act as a fiduciary with respect to any employee benefit plans 
subject to the Act;
    (l) this exemption, if granted, would not be applicable if any of 
the Applicants now, or in the future, becomes affiliated with any 
person or entity convicted of any of the crimes described in section 
I(g) of PTCE 84-14, other than RNYSC; and
    (m) this exemption, if granted, would not be applicable if any of 
the Applicants now, or in the future, becomes convicted of any of the 
crimes described in section I(g) of PTCE 84-14, including such crimes 
subsequently committed by RNYSC.

Notice to Interested Persons

    The Applicants will deliver by hand or by first class mail a copy 
of the Notice of Proposed Exemption (the Notice) along with the 
supplemental statement (the Supplemental Statement), described at 29 
CFR 2570.43(b)(2), to the investment fiduciary or trustee for each of 
the current Plan Clients for which one or more of the Applicants might 
potentially act as a QPAM.
    The Notice and the Supplemental Statement will be delivered by hand 
delivery or first class mail, within fifteen (15) days of the 
publication of the Notice in the Federal Register. Comments and 
requests for a hearing are due on or before 45 days from the date of 
publication of the Notice in the Federal Register.
    A copy of the final exemption, if granted, will also be provided to 
the investment fiduciary or trustee of each of the current Plan Clients 
who receive a copy of the Notice.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the Department 
telephone (202) 693-8551. (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 20th day of February, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-4501 Filed 2-26-02; 8:45 am]
BILLING CODE 4510-29-P