[Federal Register Volume 68, Number 86 (Monday, May 5, 2003)]
[Notices]
[Pages 23766-23782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11012]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-10992, et al.]


Proposed Exemptions; Local 705 International Brotherhood of 
Teamsters Pension Plan (the Plan)

AGENCY: Employee Benefits Security 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

[[Page 23767]]

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 Employee Benefits Security 
Administration (EBSA), 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 EBSA 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 
Employee Benefits Security 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.

Local 705 International Brotherhood of Teamsters Pension Plan (the 
Plan) Located in Chicago, Illinois

[Application No. D-10992]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed purchase of a 10 ft. x 52.6 ft. 
parcel of real property (the Property) by the West Side Realty 
Corporation (West Side), a wholly owned affiliate of the Plan from 
Local 705 Building Corporation (the Building Corporation), a party in 
interest with respect to the Plan, provided that the following 
conditions are met:
    (a) The purchase of the Property by the Plan is a one-time 
transaction for cash;
    (b) The Plan pays no more than the lesser of: (i) $147,000; or (ii) 
the fair market value of the Property as determined at the time of the 
transaction;
    (c) The fair market value of the Property is established by an 
independent, qualified, real estate appraiser that is unrelated to the 
Building Corporation or any other party in interest with respect to the 
Plan;
    (d) The Plan will not pay any commissions or other expenses with 
respect to the transaction; and
    (e) The Townsend Group, Institutional Real Estate Consultants (the 
Townsend Group), acting as an independent, qualified, fiduciary for the 
Plan, determines that the proposed transaction is in the best interest 
of the Plan and its participants and beneficiaries.

Summary of Facts and Representations

    1. The Plan is a defined benefit plan. The approximate aggregate 
fair market value of the total assets of the Plan is $1,035,500,093. 
The percentage of the fair market value of the total assets of the Plan 
that is involved in the exemption transaction is .0001% as of April 12, 
2001. The Plan has eight (8) trustees, four (4) of whom are selected by 
employers who are parties to collective bargaining agreements with the 
Truck Drivers, Oil Drivers, Filling Station and Platform Workers Union, 
Local 705, International Brotherhood of Teamsters, Chauffeurs, 
Warehousemen and Helpers of America (the Union) and four (4) of whom 
are selected by the Union. These eight (8) individuals who serve as 
trustees of the Plan also serve as directors of West Side, which is an 
Illinois corporation wholly owned by the Plan.
    2. The Building Corporation, a nominee corporation controlled by 
the Union owns the Property which consists of a 10 ft. x 52.6 ft. 
parcel in Chicago, Illinois. In 1992, the Plan completed construction, 
at 1645 West Jackson Boulevard, Chicago, Illinois, of a multi-tenant 
office building which is owned by West Side and which is currently 
leased to the Union and many other tenants. Sometime thereafter, the 
Plan became aware that the multi-tenant office building encroached, in 
part, on the Property.
    As a result, the Plan now proposes, through West Side, to purchase 
the Property from the Building Corporation. The Property is contiguous 
to other parcels owned by the Building Corporation, and the parties 
contemplate granting each other cross-easements for parking and ingress 
and egress over their respective parcels pursuant to a reciprocal 
easement agreement.\1\
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    \1\ The Department is providing no relief herein with respect to 
any prohibited transactions that may arise in connection with any 
cross-easement agreements.
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    3. The proposed purchase is in the interest of the Plan and its 
participants and beneficiaries since it resolves any concerns involving 
ownership boundaries between the Property and the multi-tenant office 
building. The applicant represents that the proposed purchase by the 
Plan from the Building Corporation is the most equitable and convenient 
method to resolve this matter. The purchase of the Property will 
enhance the future marketability of the Property and will avoid the 
expense of possible future litigation. The rights of the Plan 
participants and beneficiaries are adequately protected by the 
transaction in question. The Building Corporation has offered to sell 
the Property to the Plan for cash in the amount of $147,000.\2\
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    \2\ The Building Corporation has determined that a price of 
$147,000 in cash for the Property would be acceptable.
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    4. The Property was appraised by Michael S. MaRous, an employee of 
MaRous and Company (the Appraiser), a real estate appraisal firm 
located in Park Ridge, Illinois. The Appraiser

[[Page 23768]]

utilized a sales comparison methodology in valuing the Property. To 
develop the opinion of value, the Appraiser performed a complete 
appraisal process as defined by the Uniform Standards of Professional 
Appraisal Practice. The Appraiser concluded that the unencumbered fee 
simple interest in the Property would have a fair market value of 
approximately $402,300, as of July 17, 2001.
    5. The Townsend Group has been appointed by the Plan trustees to 
act as an independent fiduciary for the Plan for purposes of the 
transaction. The Townsend Group is an institutional real estate 
consulting company based in Cleveland, Ohio. Townsend acknowledges and 
represents that in serving as an independent fiduciary, the Townsend 
Group is a fiduciary of the Plan within the meaning of section 3(21) of 
the Act. Townsend is familiar with the duties imposed on fiduciaries 
under the Act, including the requirement that a fiduciary act solely 
and exclusively in the interest of a plan's participants and 
beneficiaries. Townsend's familiarity with the Act stems from its 
provision of a diverse array of real estate consulting services to a 
large base of domestic pension funds, as well as through transactional 
assignments for other intuitional investors during the firm's history. 
The Townsend Group represents that it is an independent fiduciary and 
not an affiliate of, or related to, the entities involved in the 
subject transaction. In this regard, the Townsend Group certifies that 
less than one (1) percent of its annual income (measured on the basis 
of the prior year's income) comes from business derived from The 
Building Corporation and its affiliates.
    7. The Townsend Group has reviewed all of the terms and conditions 
of the proposed purchase of the Property by the Plan.
    Based of this review and analysis, the Townsend Group concluded 
that the transaction is in the best interests of the Plan and its 
participants and beneficiaries.
    8. In summary, the applicant states that the transaction will 
satisfy the statutory criteria of section 408(a) of the Act because: 
(a) The proposed purchase of the Property by the Plan is a one-time 
transaction for cash; (b) the Plan will not pay more than the lesser of 
either $147,000, or the fair market value of the Property as determined 
at the time of the transaction; (c) the fair market value of the 
Property was established by an independent, qualified, real estate 
appraiser; (d) the Plan will not pay any commissions or other expenses 
with respect to the transaction, other than the services of an 
independent fiduciary (as described herein); and (e) the Townsend 
Group, acting as the Plan's independent fiduciary, determined that the 
proposed transaction is in the best interest of the Plan and its 
participants and beneficiaries.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

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

Skandinaviska Enskilda Banken AB (SEB) Located in Stockholm, Sweden

[Application No. D-11133]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department of Labor is considering granting an 
exemption under the authority of section 408(a) of the Act (or ERISA) 
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).\3\
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    \3\ For the purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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Section I. Covered Transactions
    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) of the Act and the sanctions resulting from 
the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (D) of the Code, shall not apply, effective 
October 23, 2002, to: (1) The lending of securities that are assets of 
a plan (the Plan) to SEB's head office in Stockholm (the Borrower) in 
accordance with the conditions set forth below (the foregoing being 
Part One of this proposed exemption); and (2) the lending of 
securities, under certain exclusive borrowing arrangements, to the 
Borrower by Plans including commingled investment funds holding assets 
of such Plans with respect to which SEB or any of its affiliates is a 
party in interest; and (3) the receipt of compensation by SEB or any of 
its affiliates in connection with these exclusive borrowing 
transactions (the foregoing being Part Two of this proposed exemption).
    This proposed exemption is subject to the conditions contained 
below in Sections II, III, and IV.
Section II. Conditions Applicable to Part One of the Proposed 
Exemption--Securities Lending Between Plans and the Borrower
    (a) Neither the Borrower nor any of its affiliates has 
discretionary authority or control with respect to the investment of 
Plan assets involved in the transaction, or renders investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to such 
assets.
    (b) Each Plan receives from the Borrower, either by physical 
delivery or by book entry in a securities depository located in the 
United States, by the close of business on the day on which the 
securities lent 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, or irrevocable United 
States bank letters of credit issued by persons other than the Borrower 
(or any of its affiliates), or any combination thereof, having, as of 
the close of business on the preceding business day, a market value 
(or, in the case of letters of credit, a stated amount) equal to or not 
less than 100 percent of the then market value of the securities lent. 
The collateral referred to in this exemption, shall in all cases, be in 
U.S. dollars or dollar-denominated securities or United States bank 
letters of credit and must be held in the United States.
    (c) Each loan is made pursuant to a written loan agreement (the 
Loan Agreement), which may be in the form of a master agreement 
covering a series of securities lending transactions, and which 
contains terms at least as favorable to the Plan as those the Plan 
could obtain in an arm's length transaction with an unrelated party.
    (d) In return for lending securities, each Plan either
    (1) receives a reasonable fee which is related to the value of the 
borrowed securities and the duration of the loan, or (2) has the 
opportunity to derive compensation through the investment of cash 
collateral. In the latter case, the Plan may pay a loan rebate or 
similar fee to the Borrower, if such fee is not greater than the Plan 
would pay an unrelated party in a comparable arm's length transaction 
with an unrelated party.
    (e) Each Plan receives at least the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
including, but not limited to, cash dividends, interest payments, 
shares of stock as a result of stock splits and rights to

[[Page 23769]]

purchase additional securities that the Plan would have received (net 
of tax withholdings)\4\ had it remained the record owner of such 
securities.
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    \4\ The Department notes that the Applicant's representation 
that dividends and other distributions on foreign securities payable 
to a lending Plan may be subject to foreign tax withholdings and 
that the Borrower will always put the Plan in at least as good a 
position as it would have been in had it not loaned the securities.
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    (f) If the market value of the collateral on the close of trading 
on a business day falls below 100 percent of the market value of the 
borrowed securities at the close of trading on that day, the Borrower 
delivers additional collateral, by the close of business on the 
following business day to bring the level of the collateral back to at 
least 100 percent of the market value of all the borrowed securities as 
of such preceding day. Notwithstanding the foregoing, part of the 
collateral may be returned to the Borrower if the market value of the 
collateral exceeds 100 percent of the market value of the borrowed 
securities, as long as the market value of the remaining collateral 
equals at least 100 percent of the market value of the borrowed 
securities.
    (g) Prior to entering into a loan agreement, the Borrower furnishes 
to the independent fiduciary of the Plan who is making decisions on 
behalf of the Plan with respect to the lending of securities: (1) The 
most recently available audited statement of the Borrower's financial 
condition, (2) the most recent available unaudited statement of the 
Borrower's financial condition, and (3) a representation by the 
Borrower that, as of each time it borrows securities, there has been no 
material adverse change in its financial condition since the date of 
the most recently furnished financial statement that has not been 
disclosed to the Plan fiduciary.
    Such representation may be made by the Borrowers' agreeing that 
each loan shall constitute a representation by the Borrower that there 
has been no material adverse change in its financial condition since 
the date of the most recently furnished statements of financial 
condition.
    (h) Each Loan Agreement and any securities loan outstanding may be 
terminated by the applicable Plan at any time, whereupon the Borrower 
delivers securities identical to the borrowed securities (or the 
equivalent thereof in the event of reorganization, recapitalization, or 
merger of the issuer of the borrowed securities) to the Plan within (1) 
the customary delivery period for such securities; (2) five business 
days; or (3) the time negotiated for such delivery by the Plan and the 
Borrower, whichever is lesser, or, alternatively such period as 
permitted by Prohibited Transaction Class Exemption (PTE) 81-6 (43 FR 
7527, January 23, 1981), as it may be amended or superseded.\5\
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    \5\ PTE 81-6 as amended at 52 FR 18754, May 19, 1987, provides 
an exemption under certain conditions from section 406(a)(1)(A) 
through (D) of the Act and the corresponding provisions of section 
4975(c) of the Code for the lending of securities that are assets of 
an employee benefit plan to certain broker-dealers or banks which 
are parties in interest.
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    (i) In the event that the loan is terminated and the Borrower fails 
to return the borrowed securities or the equivalent thereof within the 
time described in paragraph (h) above, then the Plan may purchase 
securities identical to the borrowed securities (or their equivalent as 
described above) and may apply the collateral to the payment of the 
purchase price, any other obligations of the Borrower under the Loan 
Agreement, and any expenses associated with the sale and/or purchase. 
The Borrower indemnifies the Plan with respect to the difference, if 
any, between the replacement cost of the borrowed securities and the 
market value of the collateral on the date the loan is declared in 
default, together with expenses not covered by the collateral plus 
applicable interest at a reasonable rate. Notwithstanding the forgoing, 
the Borrower may, in the event it fails to return borrowed securities 
as described above, replace non-cash collateral with an amount of cash 
not less than the then-current market value of the collateral, provided 
that such replacement is approved by the independent plan fiduciary.
    (j) Each Plan maintains the situs of any Loan Agreement in 
accordance with the indicia of ownership requirements under section 
404(b) of the Act and the regulations promulgated under 29 CFR 
2550.404(b)-1. However, the Borrower shall not be subject to the civil 
penalty, which may be assessed pursuant to section 502(i) of the Act, 
or to the taxes imposed by section 4975(a) and (b) of the Code, if the 
independent plan fiduciary fails to comply with the requirements of 29 
CFR 2550.404(b)-1.
    If the Borrower fails to comply with any condition of this 
exemption in the course of engaging in a securities lending 
transaction, the Plan fiduciary which caused the Plan to engage in such 
transaction shall not be deemed to have caused the Plan to engage in a 
transaction prohibited by section 406(a)(1)(A) through (D) of the Act 
solely by reason of the failure on the part of the Borrower to comply 
with the conditions of the proposed exemption.
Section III. Conditions Applicable to Part Two of the Proposed 
Exemption--Exclusive Borrowing Arrangements Between Plans and the 
Borrower
    (a) For each Plan, neither the Borrower nor any affiliate has or 
exercises discretionary authority or control over the Plan's investment 
in the securities available for loan, nor do they render investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets.
    (b) The Borrower is a party in interest with respect to each Plan 
(including a fiduciary) solely by reason of providing services to the 
Plan, or solely by reason of a relationship to a service provider 
described in section 3(14)(F), (G), (H), or (I) of the Act.
    (c) The Borrower directly negotiates an exclusive borrowing 
agreement (the Borrowing Agreement) with a Plan fiduciary which is 
independent of the Borrower and its affiliates.
    (d) The terms of each loan of securities by a Plan to the Borrower 
are at least as favorable to such Plan as those of a comparable arm's 
length transaction between unrelated parties, taking into account the 
exclusive arrangement.
    (e) In exchange for granting the Borrower the exclusive right to 
borrow certain securities, each Plan receives from the Borrower either 
(1) a flat fee (which may be equal to a percentage of the value of the 
total securities subject to the Borrowing Agreement from time to time), 
(2) a periodic payment that is equal to a percentage of the value of 
the total balance of outstanding borrowed securities, or (3) any 
combination of (1) and (2) (collectively, the Exclusive Fee). If the 
Borrower deposits cash collateral, all the earnings generated by such 
cash collateral shall be returned to the Borrower; provided that the 
Borrower may, but shall not be obligated to, agree with the independent 
fiduciary of the applicable Plan that a percentage of the earnings on 
the collateral may be retained by the Plan or the Plan may agree to pay 
the Borrower a rebate fee and retain the earnings on the collateral 
(the Shared Earnings Compensation). If the Borrower deposits non-cash 
collateral, all earnings on the non-cash collateral shall be returned 
to the Borrower; provided that the Borrower may, but shall not be 
obligated to, agree to pay the applicable Plan a lending fee (the 
Lending Fee, together with the Shared Earnings Compensation, is 
referred to as the Transaction Lending Fee). The Transaction Lending 
Fee, if any, shall be either in addition to the Exclusive Fee or an 
offset against such Exclusive Fee. The Exclusive Fee and

[[Page 23770]]

the Transaction Lending Fee may be determined in advance or pursuant to 
an objective formula, and may be different for different securities or 
different groups of securities subject to the Borrowing Agreement. Any 
change in the Exclusive Fee or the Transaction Lending Fee that the 
Borrower pays to the Plan with respect to any securities loan requires 
the prior written consent of the independent fiduciary of the Plan, 
except that consent is presumed where the Exclusive Fee or the 
Transaction Lending Fee changes pursuant to an objective formula. Where 
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an 
objective formula, the independent fiduciary of the Plan must be 
notified at least 24 hours in advance of such change and such 
independent Plan fiduciary must not object in writing to such change, 
prior to the effective time of such change.
    (f) The Borrower may, but shall not be required to, agree to 
maintain a minimum balance of borrowed securities subject to each 
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar 
amount, a flat percentage or other percentage determined pursuant to an 
objective formula.
    (g) By the close of business on or before the day the loaned 
securities are delivered to the Borrower, each Plan receives from the 
Borrower (by physical delivery, book entry in a securities depository 
located in the United States, wire transfer, or similar means) 
collateral consisting of U.S. currency, securities issued or guaranteed 
by the U.S. Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank other than SEB 
or any affiliate thereof, or any combination thereof, or other 
collateral permitted under PTE 81-6, as amended or superseded. Such 
collateral will be deposited and maintained in an account which is 
separate from the Borrower's accounts and will be maintained with an 
institution other than the Borrower. For this purpose, the collateral 
may be held on behalf of a Plan by an affiliate of the Borrower that is 
the trustee or custodian of such Plan.
    (h) The market value (or in the case of a letter of credit, the 
stated amount) of the collateral initially equals at least 102 percent 
of the market value of the loaned securities on the close of business 
on the day preceding the day of the loan and, if the market value of 
the collateral at any time falls below 100 percent (or such higher 
percentage as the Borrower and the independent fiduciary of a Plan may 
agree upon) of the market value of the loaned securities, the Borrower 
delivers additional collateral on the following day to bring the level 
of the collateral back to at least 102 percent. The level of the 
collateral is monitored daily by each Plan or its designee, which may 
be SEB or any of its affiliates which provides custodial or directed 
trustee services in respect of the securities covered by the applicable 
Borrowing Agreement. Such Borrowing Agreement shall give the applicable 
Plan title to the collateral until such collateral is redelivered to 
SEB pursuant to the terms of the Borrowing Agreement.
    (i) Before entering into any Borrowing Agreement, the Borrower 
furnishes to the applicable Plan the most recent publicly available 
audited and unaudited statements of its financial condition, as well as 
any publicly available information which it believes is necessary for 
the independent fiduciary to determine whether the Plan should enter 
into or renew the Borrowing Agreement.
    (j) Each Borrowing Agreement contains a representation by the 
Borrower that as of each time it borrows securities, there has been no 
material adverse change in its financial condition since the date of 
the most recently furnished statements of financial condition.
    (k) Each Plan receives the equivalent of all distributions made 
during the applicable loan period, including, but not limited to, cash 
dividends, interest payments, shares of stock as a result of stock 
splits, and rights to purchase additional securities, that the Plan 
would have received (net of tax withholdings) \6\ had it remained the 
record owner of the securities.
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    \6\ See Footnote 2, infra.
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    (l) Each Borrowing Agreement and any outstanding securities loans 
with respect thereto may be terminated by either party at any time 
without penalty (except for, if a Plan has terminated its Borrowing 
Agreement, the return to the Borrower of a pro rata portion of the 
Exclusive Fee paid by the Borrower to the Plan), whereupon the Borrower 
delivers 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 applicable Plan 
within the lesser of five business days of written notice of 
termination or the customary settlement period for such securities.
    (m) In the event that the Borrower fails to return securities in 
accordance with the Borrowing Agreement, the applicable Plan has the 
right under the Borrowing Agreement to purchase securities identical to 
the borrowed securities and apply the collateral to payment of the 
purchase price. If the collateral is insufficient to satisfy the 
Borrower's obligation to return the Plan's securities, the Borrower 
will indemnify the Plan in the U.S. with respect to the difference 
between the replacement cost of the securities and the market value of 
the collateral on the date the loan is declared in default, together 
with expenses incurred by the Plan plus applicable interest at a 
reasonable rate, including reasonable attorneys' fees incurred by the 
Plan for legal action arising out of default on the loans, or failure 
by the Borrower to properly indemnify the Plan, except to the extent 
that such losses or damages are caused by the Plan's own negligence.
    (n) Except as otherwise provided herein, all procedures regarding 
the securities lending activities, at a minimum, conform to the 
applicable provisions of PTE 81-6 (as amended or superseded), as well 
as to applicable securities laws of the United States and/or Sweden, as 
appropriate.
    (o) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to lend securities to the 
Borrower; provided, however, that--
    (1) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization (the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan 
Asset Regulation), which entity is engaged in securities lending 
arrangements with the Borrower, 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 Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization (the Unrelated Plans), whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which

[[Page 23771]]

entity is engaged in securities lending arrangements with the Borrower, 
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 Plan with respect to which the fiduciary 
responsible for making the investment decision on behalf of such group 
trust or other entity or any member of the controlled group of 
corporations including such fiduciary is the employer maintaining such 
Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million. (In 
addition, none of the entities described above are formed for the sole 
purpose of making loans of securities.)
    (p) Prior to any Plan's approval of the lending of its securities 
to the Borrower, a copy of this exemption, if granted (and the notice 
of pendency), are provided to the Plan, and the Borrower informs the 
independent fiduciary that the Borrower is not acting as a fiduciary of 
the Plan in connection with its borrowing securities from the Plan.\7\
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    \7\ The Department notes the SEB representation that, under the 
proposed exclusive borrowing arrangements, neither the Borrower nor 
any of its affiliates will perform the essential functions of a 
securities lending agent, i.e., SEB will not be the fiduciary who 
negotiates the terms of the Borrowing Agreement on behalf of the 
Plan, the fiduciary who identifies the appropriate borrowers of the 
securities or the fiduciary who decides to lend securities pursuant 
to either a general securities lending arrangement or an exclusive 
borrowing arrangement. However, SEB or its affiliates may monitor 
the level of collateral and the value of the loaned securities.
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    (q) The independent fiduciary of each Plan receives monthly reports 
with respect to the securities lending transactions, including but not 
limited to the information set forth in the following sentence, so that 
an independent Plan fiduciary may monitor such transactions with the 
relevant Borrower. The monthly report will list for a specified period 
all outstanding or closed securities lending transactions. The report 
will identify for each open loan position, the securities involved, the 
value of the security for collateralization purposes, the current value 
of the collateral, the rebate or premium (if applicable) at which the 
security is loaned, and the number of days the security has been on 
loan. At the request of a Plan, such a report will be provided on a 
daily or weekly basis, rather than a monthly basis. Also, upon request 
of a Plan, the relevant Borrower will provide the Plan with daily 
confirmations of securities lending transactions.
Section IV. General Conditions
    (a) In addition to the conditions set forth above in sections II 
and III of this proposed exemption, all loans involving the Borrower 
must satisfy the following supplemental requirements:
    (1) The Borrower is a bank which is subject to regulation by the 
Swedish Financial Supervisory Authority (Finansinspektionen) (the 
SFSA).
    (2) The Borrower is in compliance with all applicable provisions of 
Rule 15a-6 (17 CFR 240.15a-6) under the Securities Exchange Act of 
1934, as amended (the 1934 Act) which provides foreign broker-dealers a 
limited exception from United States registration requirements.
    (3) All collateral is maintained in United States dollars or in 
U.S. dollar-denominated securities or letters of credit, or other 
collateral permitted under PTE 81-6 (as amended or superseded).
    (4) All collateral is held in the United States and the situs of 
the applicable Borrowing Agreement 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.
    (5) Prior to entering into a transaction involving the Borrower, 
the Borrower must:
    (i) Agree to submit to the jurisdiction of the United States;
    (ii) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (iii) Consent to the service of process on the Process Agent; and
    (iv) Agree that enforcement by a Plan of the indemnity provided by 
the Borrower will occur in the United States courts.
    (b) The Borrower 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 (c)(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 SEB 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 Borrower 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 (c)(1). (c)(1) Except as provided in 
subparagraph (c)(2) of this paragraph and notwithstanding any 
provisions of subsections (a)(2) and (b) of section 504 of the Act, the 
records referred to in paragraph (b) are unconditionally available at 
their customary location or examination during normal business hours 
by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission (the SEC);
    (ii) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (iii) Any contributing employer to any participating Plan or any 
duly authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs 
(c)(1)(ii)-(c)(1)(iv) of this paragraph (c)(1) are authorized to 
examine the trade secrets of SEB or its affiliates or commercial or 
financial information which is privileged or confidential. (d) Prior to 
any Plan's approval of any transaction with the Borrower, the Plan is 
provided copies of the proposed and final exemptions covering the 
exemptive relief described herein.
Section V. Definitions
    (a) An ``affiliate'' of a person means:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual);
    (2) Any officer, director, employee or relative (as defined in 
section 3(15) of the Act) of any such other person or any partner in 
any such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director

[[Page 23772]]

or employee, or in which such person is a partner.
    (b) For purposes of the securities lending arrangements described 
in Part One of this exemption, the term ``Borrower'' includes SEB and 
any other current or future non-U.S. broker-dealer or bank affiliate of 
SEB. For purposes of the exclusive borrowing arrangements described in 
Part Two of this exemption, the term ``Borrower'' includes SEB and any 
other affiliate of SEB that now or in the future, is a U.S. registered 
broker-dealer or a government securities broker or dealer or U.S. bank.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
as of October 23, 2002.

Summary of Facts and Representations

    1. SEB (the Applicant), one of the principal Swedish banking 
institutions and one of the largest banking institutions in Europe, is 
regulated by the Swedish Financial Supervisory Authority 
(Finansinspektionen) (the SFSA). As of December 31, 2001, SEB 
(Consolidated Balance Sheet) had approximately $111,246,000,000 USD in 
assets and $4,236,000,000 USD in stockholder's equity. SEB currently 
conducts its securities borrowing and lending activities principally 
through its head office in Stockholm. Under the European laws 
applicable to banks, SEB is authorized to engage in a broad range of 
financial services, including acting as a securities broker or dealer. 
With respect to the transactions described herein, SEB will not act as 
a lending agent.
    2. The Borrower, acting as principal, actively engages in the 
borrowing and lending of securities. The Borrower utilizes borrowed 
securities either to satisfy its own trading requirements or to re-lend 
to other broker-dealers and entities which need a particular security 
for a certain period of time. The Applicant represents that in the 
United States, as described in the Federal Reserve Board's Regulation 
T, borrowed securities are often used in short sales, for non-purpose 
loans to exempted borrowers, or in the event of a failure to receive 
securities that a broker-dealer is required to deliver.
    The largest holding of equities, both domestic as well as 
international, are to be found in the United States. Currently, SEB can 
only access ERISA Plan assets by borrowing through a U.S. bank and/or 
broker-dealer which substantially increases the cost of borrowing. By 
being able to borrow directly, SEB can reduce this cost. SEB's more 
efficient presence in the ERISA marketplace should increase the base of 
potential borrowers which ERISA Plans can access, thus, also 
benefitting the Plans.
    3. SEB represents that it is regulated and supervised by the SFSA. 
The SFSA supervises the worldwide business of SEB (head office and 
branches). In addition, in jurisdictions outside the European Economic 
Area, the business of SEB is subject to supervision by the local 
regulators. The SFSA has the power to license banks (with the exception 
for cases of special importance where license is granted directly by 
the Government) in Sweden. The SFSA also has the power to issue 
warnings and directives to address violations by or irregularities 
involving banks, to require information from a bank or its auditor 
regarding supervisory matters and to revoke bank licenses. SEB also 
states that the SFSA ensures that SEB has procedures for monitoring and 
controlling SEB's worldwide activities through various statutory and 
regulatory standards. Among these standards are requirements for 
adequate internal controls, oversight, risk management, recordkeeping, 
and administration and financial resources. SEB further states that it 
is required to provide the SFSA on a recurring basis with information 
regarding capital adequacy,\8\ country risk exposure and foreign 
exchange exposures as well as periodic, consolidated financial reports 
on the financial condition of SEB and its affiliates. The SFSA 
continuously conducts inspections and examinations with respect to the 
SEB business. The SFSA will appoint one or more auditors to participate 
in the audit of the bank together with the auditors elected by the 
General Meeting of Shareholders.
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    \8\ The rules for capital adequacy are applicable to each 
company and on all consolidation levels within the SEB Group with a 
license to conduct banking, investment, leasing, mortgage, or 
security business. Insurance business is excluded since special laws 
apply to insurance activity. In addition, the capital adequacy 
regulation is applicable to the financial group of undertakings 
(i.e., most of the companies in the SEB Group which are not involved 
in the insurance business, and credit institutions which are 
consolidated in the financial group of undertakings).
---------------------------------------------------------------------------

    Although SEB is not a broker-dealer registered with the SEC, SEB 
has a Swedish broker-dealer license which is included in the banking 
license. SEB represents that its broker-dealer activities are governed 
by the rules and regulations of SFSA. Further, SEB is a member of the 
self regulatory organization Swedish Securities Dealer's Association 
(SSDA) and is accordingly subject to the rules and membership 
requirements imposed by SSDA.
    4. The Applicant further represents that the Borrower is subject to 
the rules of SFSA relating to, among other things, minimum 
capitalization, reporting requirements, periodic examinations. In 
addition, the Applicant states that SFSA rules impose reporting 
requirements with respect to risk management, internal controls, and 
transaction reporting and record-keeping requirements. In this regard, 
required records must be produced at the request of SFSA at any time. 
The Applicant further states that the rules and regulations of SFSA are 
backed up by potential fines and penalties as well as rules which 
establish a comprehensive disciplinary system.
    5. The Applicant represents that in addition to the protections 
afforded by the SFSA, compliance by the Borrower with the requirements 
of Rule 15a-6 of the 1934 Act (and the amendments and interpretations 
thereof) will offer further protections to the Plans.\9\ SEC Rule 15a-6 
provides an exemption from U.S. registration requirements for a foreign 
broker-dealer that induces or attempts to induce the purchase or sale 
of any security (including over-the-counter equity and debt options) by 
a ``U.S. institutional investor'' or a ``major U.S. institutional 
investor,'' provided that the foreign broker-dealer, among other 
things, enters into these transactions through a U.S. registered 
broker-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,

[[Page 23773]]

insurance company or registered investment advisor, or (b) the employee 
benefit plan has total assets in excess of $5 million, or (c) the 
employee benefit plan is a self-directed plan with investment decisions 
made solely by persons that are ``accredited investors'' as defined in 
Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as 
amended. The term ``major U.S. institutional investor'' is defined as a 
person that is a U.S. institutional investor that has total assets in 
excess of $100 million or accounts managed by 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.\10\ 
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.
---------------------------------------------------------------------------

    \9\ According to the Applicant, section 3(a)(4)(A) of the 1934 
Act defines ``broker'' to mean ``any person engaged in the business 
of effecting transactions in securities for the account of others.'' 
Banks engaging in certain enumerated activities are excepted from 
the definition of ``broker.'' Section 3(a)(4)(B) of the 1934 Act. 
Section 3(a)(5)(C) of the 1934 Act provides a similar exception for 
``banks'' engaging in certain activities from the definition of the 
term ``dealer.'' However, section 3(a)(6) of the 1934 Act defines 
``bank'' to mean a banking institution organized under the laws of 
the United States or a State of the United States. Further, Rule 
15(a)(6)(b)(2) provides that the term ``foreign broker or dealer'' 
means ``any non-U.S. resident person * * * whose securities 
activities, if conducted in the United States, would be described by 
the definition of ``broker'' or ``dealer'' in sections 3(a)(4) or 
3(a)(5) of the [1934] Act.'' Therefore, the test of whether an 
entity is a ``foreign broker'' or ``dealer'' is based on the nature 
of such foreign entity's activities and, with certain exceptions, 
only banks that are regulated by either the United States or a State 
of the United States are excluded from the definition of the term 
``broker'' or ``dealer.'' Thus, for purposes of this exemption 
request, the Borrower is willing to represent that it will comply 
with the applicable provisions and relevant SEC interpretations and 
amendments of Rule 15a-6.
    \10\ Note that the categories of entities that qualify as 
``major U.S. institutional investors'' has been expanded by a 
Securities and Exchange Commission No-Action letter. See SEC No-
Action Letter issued to Cleary, Gottlieb, Steen & Hamilton on April 
9, 1997, expanding the definition of ``Major U.S. Institutional 
Investor'' (the April 9, 1997 No-Action Letter).
---------------------------------------------------------------------------

    6. 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 Rule 15a-6 \11\ must, among other things:
---------------------------------------------------------------------------

    \11\ If it is determined that applicable regulation under the 
1934 Act does not require SEB or the Borrower to comply with Rule 
15a-6, both entities will, nevertheless, comply with subparagraphs 
(a) and (b) of Representation 6.
---------------------------------------------------------------------------

    (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 such foreign 
associated persons, and any assistance in taking the evidence of other 
persons, wherever located, that the SEC requests and that relates to 
the transactions effected pursuant to the Rule;
    (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 the 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 SEC Rules l7a-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 certain oral communications (e.g., telephone 
calls) between the foreign associated person and the U.S. institutional 
investor (not the major U.S. institutional investor), and accompany the 
foreign associated person on certain visits with both U.S. 
institutional and major U.S. institutional investors. Under certain 
circumstances, the foreign associated person may have direct 
communications and contact with the U.S. Institutional Investor. (See 
April 9, 1997 No-Action Letter.)
    7. An institutional investor, such as a pension fund, lends 
securities in its portfolio to a broker-dealer or bank in order to earn 
a fee while continuing to enjoy the benefits of owning the securities 
(e.g., from the receipt of any interest, dividends, or other 
distributions due on those securities and from any appreciation in the 
value of the securities). The lender generally requires that the 
securities loan be fully collateralized, and the collateral usually is 
in the form of cash or high quality liquid securities, such as U.S. 
Government or Federal Agency obligations or irrevocable bank letters of 
credit. If the Borrower deposits cash collateral, and the lender 
invests the collateral, then the applicable borrowing agreement may 
provide that the lender pay the Borrower a previously-agreed upon 
amount or rebate fee and keep the excess of the earnings on the 
collateral over the rebate fee as compensation. If the Borrower 
deposits government securities, the Borrower is entitled to the 
earnings on its deposited securities and may pay the lender a lending 
fee. If the Borrower deposits irrevocable bank letters of credit as 
collateral, the Borrower pays the lender a fee as compensation for the 
loan of its securities. These fees, defined below as the Transaction 
Lending Fee, may be determined in advance or pursuant to an objective 
formula, and may be different for different securities or different 
groups of securities subject to the Borrowing Agreement.

Securities Lending Between Plans and the Borrower

    8. SEB requests exemptive relief, effective October 23, 2002, for 
the lending of securities, equivalent to that provided under the terms 
and conditions of PTE 81-6, a class exemption permitting certain loans 
of securities by Plans. However, since PTE 81-6 provides an exemption 
only for U.S. registered broker-dealers and U.S. banks, the securities 
lending transactions at issue herein (with the Borrower, acting as 
principal, and engaging in the borrowing and lending of securities, 
typically foreign securities from institutions, including Plans) may 
fall outside the scope of relief provided by PTE 81-6.
    9. The Borrower represents that it will utilize borrowed securities 
to either satisfy its own trading requirements or to re-lend to other 
affiliates and entities which need a particular security for a certain 
period of time. The Applicant represents that in the United States, as 
described in the Federal Reserve Board's Regulation T, borrowed 
securities are often used to meet delivery obligations in the case of 
short sales or the failure to receive securities that the Borrower is 
required to deliver, and SEB represents that foreign broker-dealers and 
banks are the most likely entities that seek to borrow foreign 
securities. Thus, the proposed exemption will increase the lending 
demand for such securities and provide the Plans with increased 
securities lending opportunities.
    10. Neither the Borrower nor any of its affiliates has or shall 
have discretionary authority or control with respect to the investment 
of Plan assets involved in a transaction or render investment advice 
within the meaning of 29 CFR 2510.3-21(c) with respect to such assets.
    11. Each Plan will receive, from the 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 the 
day the loaned securities are delivered to the Borrower, collateral 
consisting of U.S. currency, securities issued or guaranteed by the 
U.S. Government or its agencies, irrevocable U.S. bank letters of 
credit issued by persons other than the Borrower (or any of its 
affiliates) or any combination thereof, having, as of the close of 
trading on the preceding business day, a market value (or, in the

[[Page 23774]]

case of letters of credit, a stated amount equal to same) equal to or 
not less than 100 percent of the then market value of the securities 
lent. (The collateral referred to in this Representation will be in 
U.S. dollars or dollar-denominated securities or U.S. bank irrevocable 
letters of credit and will be held in the United States.)
    12. Each loan will be made pursuant to a written Loan Agreement 
which may be in the form of a master agreement covering a series of 
securities lending transactions. The terms of the Loan Agreement will 
be at least as favorable to the Plan as those the Plan could obtain in 
a comparable arm's length transaction with an unrelated party. The Loan 
Agreement will also contain a requirement that the Borrower pay all 
transfer fees and transfer taxes relating to the securities loans.
    13. In return for lending securities, each Plan will either (a) 
receive a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan or (b) have the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Borrower if such fee is not greater than what the Plan would pay in a 
comparable arm's length transaction with an unrelated party.
    14. Each Plan shall receive at least the equivalent of all 
distributions made to holders of the borrowed securities during the 
term of the loan, including, but not limited to, cash dividends, 
interest payments, shares of stock as a result of stock splits and 
rights to purchase additional securities that the Plan would have 
received (net of tax withholdings). The Department notes the 
Applicant's representation that dividends and other distributions on 
foreign securities payable to a lending Plan may be subject to foreign 
tax withholdings and the Borrower will always put the Plan back in at 
least as good a position as it would have been in had it not lent the 
securities and remained the record owner of such securities.
    15. If the market value of the collateral as of the close of 
trading on a business day in a certain transaction falls below 100 
percent of the market value of the borrowed securities as of the close 
of trading on that day, the Borrower will deliver additional 
collateral, by the close of business on the following business day to 
bring the level of the collateral back to at least 100 percent. 
Notwithstanding the foregoing, part of the collateral may be returned 
to the Borrower if the market value of the collateral exceeds 100 
percent of the market value of the borrowed securities, as long as the 
market value of the remaining collateral equals at least 100 percent of 
the market value of the borrowed securities. Matters relating to the 
return of the collateral, the substitution of collateral and the 
termination of loans, will be determined by applicable provisions of 
the Loan Agreement.
    16. Prior to the making of any securities loan, the Borrower will 
furnish to the independent fiduciary for the Plan who makes decisions 
on behalf of the Plan with respect to lending of securities (a) the 
most recently available audited and unaudited statements of such 
entity's financial condition, and (b) a representation from the 
Borrower that, as of each time such entity borrows securities, there 
has been no material change in the financial condition of such entity 
since the date of the most recently furnished financial statement that 
has not been disclosed to the Plan.
    17. The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Borrower will 
deliver securities identical to the borrowed securities (or the 
equivalent thereof in the event of a reorganization, recapitalization, 
or merger of the issuer of the borrowed securities) to the Plan within 
the time period specified by PTE 81-6 as it may be amended from time to 
time.
    18. In the event that a loan is terminated and the Borrower fails 
to return the borrowed securities, or the equivalent thereof, within 
the time described in Representation 18 above, the Plan may purchase 
securities identical to the borrowed securities, or the equivalent 
thereof, and may apply the collateral to the payment of the purchase 
price, any other obligations of the Borrower under the Loan Agreement 
and any expenses associated with replacing the borrowed securities. The 
Borrower shall indemnify the Plan with respect to the difference, if 
any, between the replacement cost of the borrowed securities and the 
market value of the collateral on the date the loan is declared in 
default, together with expenses not covered by the collateral plus 
applicable interest at a reasonable rate.
    Notwithstanding the foregoing, the Borrower may, in the event it 
fails to return borrowed securities as described above, replace non-
cash collateral with an amount of cash not less than the current market 
value of the collateral, provided that, such replacement is approved by 
the independent Plan fiduciary.
    19. Each Plan will maintain the situs of the Loan Agreement in 
accordance with the indicia of ownership requirements of section 404(b) 
of the Act and the regulations promulgated under 29 CFR 2550.404(b)-1. 
However, the Borrower will not be subject to the civil penalty which 
may be assessed under section 502(i) of the Act or to the taxes imposed 
by section 4975(a) and (b) of the Code, if the Plan fails to comply 
with the requirements of 29 CFR 2550.404(b)-1.21.

Exclusive Borrowing Arrangements Between Plans and the Borrower

    20. The Borrower also requests an exemption for the lending of 
securities, under certain exclusive borrowing arrangements, by Plans 
with respect to which SEB or any of its affiliates is a party in 
interest, for example, by virtue of its providing investment 
management, custodial, or other services to such Plans. For each Plan, 
neither the Borrower nor any of its affiliates will have discretionary 
authority or control over the Plan's investment in the securities 
available for loan, nor will they render investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to those assets.\12\ 
However, because the Borrower, by exercising its contractual rights 
under the proposed exclusive borrowing arrangements, will have 
discretion with respect to whether there is a loan of particular Plan 
securities to the Borrower, the lending of securities to the Borrower 
may be outside the scope of relief provided by PTE 81-6.
---------------------------------------------------------------------------

    \12\ Condition 1 of PTE 81-6 requires, in part, that neither a 
borrower nor an affiliate of the borrower may have discretionary 
authority or control over the investment of the applicable plan 
assets involved in the transaction.
---------------------------------------------------------------------------

    Generally, the Borrower is a party in interest with respect to 
Plans, if at all, solely by reason of providing services to the Plan, 
or solely by reason of a relationship to a service provider under 
section 3(14)(F), (G), (H), or (I) of the Act.
    21. For each Plan, the Borrower will directly negotiate a Borrowing 
Agreement with a Plan fiduciary which is independent of the Borrower. 
Under the Borrowing Agreement, the Borrower will have exclusive access 
for a specified period of time to borrow certain securities of the Plan 
pursuant to certain conditions. The Borrowing Agreement will specify 
all material terms of the agreement, including the basis for 
compensation to the Plan under each category of securities available 
for loan. The Borrowing Agreement will also contain a requirement that 
the Borrower pay all

[[Page 23775]]

transfer fees and transfer taxes relating to the securities loans. The 
terms of each loan of securities by a Plan to a Borrower will be at 
least as favorable to such Plan as those of a comparable arm's length 
transaction between unrelated parties, taking into account the 
exclusive arrangement.
    22. The Borrower may, but shall not be required to, agree to 
maintain a minimum balance of borrowed securities subject to the 
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar 
amount, a flat percentage or other percentage determined pursuant to an 
objective formula.
    23. In exchange for granting the Borrower the exclusive right to 
borrow certain securities, the Borrower will pay each Plan either (a) a 
flat fee (which may be equal to a percentage of the value of the total 
securities subject to the Borrowing Agreement), (b) a periodic payment 
that is equal to a percentage of the value of the total balance 
outstanding on the borrowed securities, or (c) any combination of (a) 
and (b) (collectively, the Exclusive Fee). If the Borrower deposits 
cash collateral, all the earnings generated by such cash collateral 
shall be returned to the Borrower; provided that the Borrower may, but 
shall not be obligated to, agree with the independent fiduciary of the 
applicable Plan that a percentage of the earnings on the collateral may 
be retained by such Plan or such Plan may agree to pay the Borrower a 
rebate fee and retain the excess of the earnings on the collateral over 
the rebate fee paid by such Plan to the Borrower (the Shared Earnings 
Compensation). If the Borrower deposits non-cash collateral, all 
earnings on the non-cash collateral will be returned to the Borrower 
and the Borrower may, but shall not be obligated to, agree to pay the 
applicable Plan a lending fee (the Lending Fee, together with the 
Shared Earnings Compensation, the Transaction Lending Fee). The 
Transaction Lending Fee, if any, may be in addition to the Exclusive 
Fee or an offset against such Exclusive Fee. The Exclusive Fee and the 
Transaction Lending Fee may be determined in advance or pursuant to an 
objective formula, and may be different for different securities or 
different groups of securities subject to the Borrowing Agreement. Any 
change in the Exclusive Fee or the Transaction Lending Fee that the 
Borrower pays to a Plan with respect to any securities loan requires 
the prior written consent of the independent fiduciary of the Plan, 
except that consent is presumed where the Exclusive Fee or the 
Transaction Lending Fee changes pursuant to an objective formula. Where 
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an 
objective formula, the independent fiduciary of the Plan must be 
notified at least 24 hours in advance of such change and such 
independent Plan fiduciary must not object in writing to such change, 
prior to the effective time of such change.
    The Plan will be entitled to the equivalent of all distributions 
made to holders of the borrowed securities during the loan period, 
including, but not limited to, cash dividends, interest payments, 
shares of stock as a result of stock splits, and rights to purchase 
additional securities that the plan would have received (net of tax 
withholdings in the case of foreign securities), had it remained the 
record owner of the securities.
    24. By the close of business on or before the day the loaned 
securities are delivered to the Borrower, each Plan will receive from 
the Borrower (by physical delivery, book entry in a securities 
depository located in the United States, wire transfer, or similar 
means) collateral consisting of U.S. currency, securities issued or 
guaranteed by the U.S. Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by U.S. banks other than SEB 
or its affiliates, or other collateral permitted under PTE 81-6 (as 
amended or superseded). Such collateral will be deposited and 
maintained in an account which is separate from the Borrower's accounts 
and will be maintained with an institution other than the Borrower. For 
this purpose, the collateral may be held on behalf of a Plan by an 
affiliate of the Borrower that is the trustee or custodian of the Plan. 
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 independent fiduciary of each plan or its 
designee, which may be SEB or any of its affiliates, will monitor the 
level of the collateral daily and, if the market value of the 
collateral on the close of a business day falls below 100 percent (or 
such higher percentage as the Borrower and the independent fiduciary of 
the Plan may agree upon) of the market value of the loaned securities 
at the close of business on such day, the Borrower will deliver 
additional collateral by the close of business on the following day to 
bring the level of the collateral back to at least 102 percent.
    If the Borrower deposits cash collateral, and the Plan invests the 
collateral, then all earnings on such cash collateral shall be returned 
to the Borrower; provided that the applicable Borrowing Agreement may 
provide that the Plan receive Shared Earnings Compensation, which, as 
discussed above, may be a percentage of the earnings on the collateral 
which may be retained by the Plan or the excess of the earnings on the 
collateral over a rebate fee paid by the Plan to the Borrower. The 
terms of the rebate fee for each loan will be at least as favorable to 
the Plan as those of comparable arm's length transactions between 
unrelated parties taking into account the exclusive arrangement, and 
will be based upon an objective methodology which takes into account 
several factors, including potential demand for the loaned securities, 
the applicable benchmark cost of fund indices (typically, the U.S. 
Federal Funds rate established by the Federal Reserve (the Federal 
Funds), the overnight REPO \13\ rate, or the like) and anticipated 
investment return on overnight investments permitted by the independent 
fiduciary of the Plan. If the Borrower deposits non-cash collateral, 
such as government securities or irrevocable bank letters of credit, 
the Borrower is entitled to the earnings on its non-cash collateral and 
the Plan may receive a Lending Fee. The Exclusive Fee and the 
Transaction Lending Fee may be determined in advance or pursuant to an 
objective formula, and may be different for different securities or 
different groups of securities subject to the Borrowing Agreement.
---------------------------------------------------------------------------

    \13\ An overnight REPO is an overnight repurchase agreement that 
is an arrangement whereby securities dealers and banks finance their 
inventories of Treasury bills, notes and bonds. The dealer or bank 
sells securities to an investor with a temporary surplus of cash, 
agreeing to buy them back the next day. Such transactions are 
settled in immediately available Federal Funds, usually at a rate 
below the Federal Funds rate (the rate charged by the banks lending 
funds to each other).
---------------------------------------------------------------------------

    The Borrower will provide a monthly report to each such Plan 
showing, on a daily basis, the aggregate market value of all 
outstanding security loans to the Borrower and the aggregate market 
value of the collateral.
    25. Before entering into a Borrowing Agreement, the Borrower will 
furnish to each Plan the most recent publicly available audited and 
unaudited statements of its financial condition, as well as any 
publicly available information which it believes is necessary for the 
applicable independent fiduciary to determine whether the Plan should 
enter into or renew the applicable Borrowing Agreement. Further, the 
Borrowing Agreement will contain a representation by the Borrower that 
as of each time it

[[Page 23776]]

borrows securities, there has been no material adverse change in its 
financial condition since the date of the most recently furnished 
statements of financial condition.
    26. Prior to any Plan's approval of the lending of its securities 
to the Borrower, a copy of this exemption, if granted, (and the notice 
of pendency) is provided to the Plan, and the Borrower informs the 
independent fiduciary that the Borrower is not acting as a fiduciary of 
the Plan in connection with its borrowing securities from the Plan.
    27. With regard to those Plans for which SEB or any of its 
affiliates provides custodial, clearing and/or reporting functions 
relative to securities loans, SEB and a Plan fiduciary independent of 
SEB and its affiliates, will agree in advance and in writing to any fee 
that SEB or any of its affiliates is to receive for such services. Such 
fees, if any, would be fixed fees (e.g., SEB or any of its affiliates 
might negotiate to receive a fixed percentage of the value of the 
assets with respect to which it performs these services, or to receive 
a stated dollar amount) and any such fee would be in addition to any 
fee SEB or any of its affiliates has negotiated to receive from any 
such Plan for standard custodial or other services unrelated to the 
securities lending activity. The arrangement for SEB or any of its 
affiliates to provide such functions relative to securities loans to 
the Borrower will be terminable by the Plan within five (5) business 
days of the receipt of written notice without penalty to the Plan, 
except for the return to the Borrower of a pro rata portion of the 
Exclusive Fee paid by the Borrower to the Plan, if the Plan has also 
terminated its exclusive borrowing arrangement with the Borrower.
    28. Each Borrowing Agreement and any outstanding securities loans 
with respect thereto may be terminated by either party at any time 
without penalty (except for, if a Plan has terminated its Borrowing 
Agreement, the return to the Borrower of a pro rata portion of the 
Exclusive Fee paid by the Borrower to the Plan). Upon termination of 
any securities loan, the Borrower will return the borrowed securities 
(or the equivalent thereof in the event of reorganization, 
recapitalization, or merger of the issuer of the borrowed securities) 
to the Plan within the lesser of five business days of written notice 
of termination or the customary settlement period for such securities.
    If the Borrower fails to return the securities or the equivalent 
thereof within the designated time, the applicable Plan will have 
certain rights under the Borrowing Agreement to realize upon the 
collateral. In the event that the Borrower defaults on a loan, the 
independent fiduciary of the Plan or its agent will have the right to 
liquidate the loan collateral to purchase identical securities for the 
Plan. If the collateral is insufficient to accomplish such purchase, 
the Borrower will indemnify the Plan for any shortfall in the 
collateral plus interest on such amount and any transaction costs 
incurred (including reasonable attorney's fees of the Plan for legal 
actions arising out of the default on the loans or failure to properly 
indemnify under such provisions). Alternatively, if such replacement 
securities cannot be obtained on the open market, the Borrower shall 
pay the Plan the difference in U.S. dollars between the market value of 
the loaned securities and the market value of the related collateral on 
the date of the Borrower's breach of its obligation to return the 
loaned securities.
    29. In the event the Borrower fails to return securities in 
accordance with a Borrowing Agreement, the applicable Plan will have 
the right under the Borrowing Agreement to purchase securities 
identical to the borrowed securities and apply the collateral to 
payment of the purchase price. If the collateral is insufficient to 
satisfy the Borrower's obligation to return the Plan's securities, the 
Borrower will indemnify the Plan in the U.S. with respect to the 
difference between the replacement cost of securities and the market 
value of the collateral on the date the loan is declared in default, 
together with expenses incurred by the Plan plus applicable interest at 
a reasonable rate, including reasonable attorneys' fees incurred by the 
Plan for legal action arising out of default on the loans, or failure 
by the Borrower to properly indemnify the Plan except to the extent 
that such losses or damages are caused by the Plan's own negligence.
    30. Except as provided herein, all the procedures under each 
Borrowing Agreement will, at a minimum, conform to the applicable 
provisions of PTE 81-6 (as amended or superseded), as well as to 
applicable securities laws of the United States and Sweden, as 
appropriate. In addition, in order to ensure that the independent 
fiduciary representing a Plan has the experience, sophistication, and 
resources necessary to adequately review the Borrowing Agreement and 
the fee arrangements thereunder, only Plans with total assets having an 
aggregate market value of at least $50 million are permitted to lend 
securities to the Borrower; provided, however, that--
    (a) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization (the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan 
Asset Regulation), which entity is engaged in securities lending 
arrangements with the Borrower, 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.
    (b) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization (the Unrelated Plans), whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity is engaged in securities lending arrangements with the 
Borrower, 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 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--
    (1) Has full investment responsibility with respect to plan assets 
invested therein; and
    (2) 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.)
    The Applicant represents that the opportunity for the Plans to 
enter into exclusive borrowing arrangements with the Borrower under the 
flexible fee

[[Page 23777]]

structures described herein is in the interests of the Plans because 
the Plans will then be able to choose among an expanded number of 
competing exclusive borrowers, as well as maximizing the volume of 
securities lent and the return on such securities.

Supplemental Requirements

    31. In addition to the conditions set forth in Parts One and Two of 
the proposal, all loans involving the Borrower must satisfy the 
following supplemental requirements:
    (a) The Borrower is a bank which is subject to regulation by the 
SFSA.
    (b) The Borrower is in compliance with all applicable provisions of 
Rule 15a-6 under the 1934 Act which provides foreign broker-dealers a 
limited exception from United States registration requirements.
    (c) All collateral is maintained in United States dollars or in 
U.S. dollar-denominated securities or letters of credit, or other 
collateral permitted under PTE 81-6 (as amended or superseded).
    (d) All collateral is held in the United States and the situs of 
the Borrowing Agreement 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.
    (e) Prior to entering into a transaction involving the Borrower, 
the Borrower must:
    (1) Agree to submit to the jurisdiction of the United States;
    (2) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (3) Consent to the service of process on the Process Agent; and
    (4) Agree that enforcement by a Plan of the indemnity provided by 
SEB or the Borrower will occur in the United States courts.
    32. The Applicant represents that only English or New York law 
securities lending agreements will be used. Such agreements provide for 
submission to English or New York courts. As a result, the Applicant 
expects judgments to be obtained under English law or New York law, 
depending on the form of securities lending agreement used.
    According to the Applicant, if collateral provided by SEB in 
connection with the relevant securities lending transaction is located 
in the United States, the Plan can exercise its set-off rights under a 
securities lending agreement governed by English law, or it may 
foreclose on the collateral and apply the proceeds of such foreclosure 
to satisfy SEB's obligations under a securities lending agreement 
governed by New York law. All collateral pertaining to this exemption 
will be held in the United States.
    If for any reason there is no collateral available in connection 
with the relevant securities lending transaction, the Applicant states 
that the Plan may seek to enforce a judgment from a New York court or 
English court against the assets located in the United States of SEB's 
New York branch. A judgment from a New York court can be enforced in 
New York, or any sister state pursuant to the ``Full Faith and Credit'' 
clause of the U.S. Constitution and the Implementing Act of 1790. 
Almost all states have adopted the Uniform Enforcement of Foreign 
Judgments Act, which provides for either filing or registration of 
sister state judgments.
    The Applicant represents that a foreign money judgment from an 
English court can be enforced in any state where the property of SEB or 
SEB's New York branch may be attached as a basis of jurisdiction. 
Foreign judgments are recognized and enforced pursuant to the relevant 
state law which will either be based on common law or the Uniform 
Foreign Money-Judgments Recognition Act, which provides that foreign 
country money judgments that are final, conclusive, and enforceable 
where rendered will be enforceable in the same manner as a judgment of 
a court of a sister state which is entitled to ``Full Faith and 
Credit.'' The State of New York, as well as 30 other states, has 
adopted the Uniform Foreign Money-Judgments Recognition Act. Thus, the 
Applicant concludes that the Plan can bring an enforcement action, 
under an expedited procedure, on a foreign money judgment in New York 
to attach the assets of SEB's New York branch located in New York.
    33. In addition to the protections cited above, the Borrower will 
maintain, or cause to be maintained, within the United States for a 
period of six years from the date of a transaction, such records as are 
necessary to enable the Department and others to determine whether the 
conditions of the exemption have been met.
    34. In summary, the Applicant represents that the transactions have 
satisfied or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The Borrower has negotiated or will directly negotiate a 
Borrowing Agreement with an independent fiduciary of each Plan;
    (b) The Plans have been permitted or will be permitted to lend to 
the Borrower, a major securities borrower who will be added to an 
expanded list of competing exclusive borrowers, enabling the Plans to 
earn additional income from the loaned securities on a secured basis, 
while continuing to enjoy the benefits of owning the securities;
    (c) In exchange for granting the Borrower the exclusive right to 
borrow certain securities, the Borrower has paid or will pay each Plan 
the Exclusive Fee, which as discussed above may be either (1) a flat 
fee (which may be equal to a percentage of the value of the total 
securities subject to the applicable Borrowing Agreement), (2) a 
periodic payment that is equal to a percentage of the value of the 
total balance of outstanding borrowed securities, or (3) any 
combination of (1) and (2). If the Borrower deposits cash collateral, 
all the earnings generated by such cash collateral have been returned 
or will be returned to the Borrower; provided that the Borrower may, 
but shall not be obligated to, agree with the independent fiduciary of 
the applicable Plan that such Plan receive Shared Earnings 
Compensation, which as discussed above may be a percentage of the 
earnings on the collateral and may be retained by such Plan or the 
excess of the earnings on the collateral over the rebate fee paid by 
such Plan to the Borrower. The Shared Earnings Compensation, if any, 
shall be in addition to the Exclusive Fee or an offset against such 
Exclusive Fee. The Exclusive Fee and the Shared Earnings Compensation 
may be determined in advance or pursuant to an objective formula, and 
may be different for different securities or different groups of 
securities subject to the applicable Borrowing Agreement;
    (d) Any change in the Exclusive Fee or Shared Earnings Compensation 
that the Borrower pays to the Plan with respect to any securities loan 
has required or will require the prior written consent of the 
independent fiduciary, except that consent will be presumed where the 
Exclusive Fee or Shared Earnings Compensation changes pursuant to an 
objective formula specified in the Borrowing Agreement and the 
independent fiduciary is notified at least 24 hours in advance of such 
change and does not object in writing thereto, prior to the effective 
time of such change;
    (e) The Borrower has provided or will provide sufficient 
information concerning its financial condition to a Plan before a Plan 
lends any securities to the Borrower;
    (f) The collateral posted with respect to each loan of securities 
to the Borrower initially has been or will be at least 102 percent of 
the market value of

[[Page 23778]]

the loaned securities and will be monitored daily by each independent 
fiduciary;
    (g) Each Borrowing Agreement and any outstanding securities loans 
with respect thereto has been terminated or will be terminated by 
either party at any time without penalty, except for the return to the 
Borrower of a pro rata portion of the Exclusive Fee paid by the 
Borrower to the applicable Plan, and the Borrower has returned or will 
return any borrowed securities (or the equivalent thereof in the event 
of reorganization, recapitalization, or merger of the issuer of the 
borrowed securities) to such Plan within the lesser of five business 
days of written notice of termination or the customary settlement 
period for such securities;
    (h) Neither the Borrower nor any of its affiliates has or will have 
discretionary authority or control over the Plan's investment in the 
securities available for loan;
    (i) The minimum Plan size requirement has ensured or will ensure 
that the Plans have the resources necessary to adequately review and 
negotiate all aspects of the exclusive borrowing arrangements; and
    (j) At a minimum, all the procedures have conformed or will conform 
to the applicable provisions of PTE 81-6 (as amended or superseded), as 
well as applicable securities laws of the United States and Sweden, as 
appropriate.

Notice to Interested Persons

    The Applicant represents that because those potentially interested 
Plans cannot all be identified, the only practical means of notifying 
such Plans of this proposed exemption is by publication in the Federal 
Register. Therefore, comments must be received by the Department not 
later than 30 days from the date of publication of this notice of 
proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji of the 
Department, telephone (202) 693-8567. (This is not a toll-free number.)

Arizona Machinery Group, Inc. (AMG) Located in Avondale, Arizona

[Application No. D-11142]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I. Transactions Covered
    If the exemption is granted, the restrictions of sections 406(a), 
(b)(1) and (b)(2), and 407(a) of the Act and the sanctions resulting 
from the application of section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1)(A) through (E) of the Code, shall not apply to: 
(a) The acquisition by the Arizona Machinery Group Employees' Profit 
Sharing Retirement Plan (the Plan) of customer notes acquired from the 
Plan sponsor, AMG, or from any successor employer which sponsors the 
Plan at the time of the acquisition of such customer note, or from any 
other employer which at the time of the acquisition of such customer 
note has adopted the Plan (including employers which adopt the Plan 
subsequent to the proposed exemption being granted) and which generates 
customer notes as defined herein in section III (B), or from any 
affiliate of any such employer, (b) the Plan's holding of the customer 
notes, if the notes acquired and held by the Plan are guaranteed by the 
respective employer or affiliate, which accepted and held the customer 
notes prior to their acquisition by the Plan, as well as by AMG (when 
the customer note was accepted and held by an employer other than AMG); 
and (c) the repurchase of customer notes from the Plan by the employer 
or affiliate which initially transferred those notes to the Plan; 
provided that, with respect to each such transaction, the conditions 
set forth below in section II are met.
Section II. Conditions
    (a) The transaction is on terms that are at least as favorable to 
the Plan as an arm's-length transaction with an unrelated party.
    (b) Prior to the consummation of a transaction described in section 
I of this proposed exemption, the transaction is approved on behalf of 
the Plan by a qualified fiduciary who is independent of any of the 
sponsoring or adopting employers or affiliates of the employer(s) 
(Independent Fiduciary), upon a determination made by such Independent 
Fiduciary that the other conditions of this exemption will be 
satisfied. The Independent Fiduciary shall acknowledge his or her plan 
fiduciary status under the Act in writing with respect to the 
transactions. For purposes of this paragraph, a person is independent 
of an employer even though he or she was selected by AMG or an adopting 
employer (or by a person with an interest in such employer) if he or 
she has no other interest in the transaction for which an exemption is 
sought that might affect his or her best judgment as a fiduciary under 
the Act.
    (c) The Plan's continuing rights under the terms and conditions of 
the acquired customer notes, and under this proposed exemption, shall 
be monitored and enforced on behalf of the Plan by the same or another 
Independent Fiduciary who is independent of any of the sponsoring or 
adopting employers and who has acknowledged his or her fiduciary status 
and liability as described in paragraph (B) of this section. The 
Independent Fiduciary shall be responsible for taking all appropriate 
actions necessary to protect the Plan's rights with regard to the 
safety and collection of the notes purchased by the Plan. These actions 
shall include, but not be limited to, ascertaining that payments are 
received timely, diligently pursuing the receipt of delinquent payments 
and enforcing the employer's or affiliates' guarantees to repurchase 
delinquent notes, with accrued interest, as described in paragraph (e) 
of this section.
    (d) The acquisition of a customer note from AMG, an adopting 
employer, or an affiliate, shall not cause the Plan to hold immediately 
following the acquisition: (i) More than twenty-five percent (25%), in 
the aggregate, of the current value (as defined in section 3(26) of the 
Act) of Plan assets in customer notes of AMG, adopting employers or 
affiliates, or (ii) more than five percent (5%) of the current value of 
Plan assets in the notes of any one customer who is the obligor under 
such notes.
    (e) An employer or affiliate from which the Plan acquires a 
customer note, as well as AMG (when the customer note was acquired from 
an employer other than AMG), guarantees in writing the immediate 
repayment of the outstanding balance of the notes and accrued interest 
in the event that the note is more than 60 days in arrears or if other 
events occur that, in the opinion of the Independent Fiduciary referred 
to in paragraph (b) and (c) of section II, impair the safety of the 
note as a Plan investment. The Independent Fiduciary may, at his or her 
discretion, grant an additional 30-day extension before repurchase of 
the note by an employer or affiliate is necessary upon a petition by 
the employer or affiliate, if the fiduciary determines, after 
consultation with the employer or affiliate, that such an extension is 
in the best interests of the participants and beneficiaries of the 
Plan. The other events (of impairment) referred to above include, but 
are not limited to, the following:
    (1) The obligor on the note fails to comply with any terms or 
conditions of the note;

[[Page 23779]]

    (2) The obligor becomes insolvent, commits an act of bankruptcy, 
makes an assignment for the benefit of creditors or a liquidating 
agent, offers a composition or extension to creditors or makes a bulk 
sale;
    (3) Any proceeding, suit or action at law, in equity, or under any 
of the provisions of Title 11 of the United States Bankruptcy Code [11 
U.S.C. 101 et seq.] or amendments thereto for reorganization, 
composition, extension, arrangements, receivership, liquidation or 
dissolution is begun by or against the obligor;
    (4) A receiver of any property of the obligor is appointed under 
any jurisdiction at law or in equity; or
    (5) The obligor fails to take proper care of or abandons the 
property being financed by the note.
    (f) The Plan receives adequate security for the note. For purposes 
of this proposed exemption, the term ``adequate security'' means that 
the note is secured by a perfected security interest in the property 
purchased by the obligor on the note so that if the security is 
foreclosed upon, or otherwise disposed of, in default of repayment of 
the loan, the value and liquidity of the security is such that it may 
reasonably be anticipated that loss of principal or interest will not 
result. In no event shall ``adequate security'' mean an interest in 
intangible personal property, such as, but not limited to, accounts, 
contract rights, documents, instruments, chattel paper, and general 
intangibles.
    (g) Insurance against loss or damage to the collateral from fire or 
other hazards will be procured and maintained by the obligor until the 
note is repaid or repurchased by the employer or affiliate from which 
the Plan originally acquired the note, and the proceeds from such 
insurance will be assigned to the Plan.
    (h) Repayment must be provided for in the following manner:
    (1) Where the note is secured by heavy equipment, the term of the 
note shall in no event exceed 60 months. For purposes of this proposed 
exemption, heavy equipment shall include machinery sold by equipment 
distributors such as, but not limited to, earth moving, material 
handling, pipe laying, power generation, and construction machinery 
manufactured according to standard specifications, but shall not 
include such equipment which has been specifically designed and 
manufactured to a user's specifications and which cannot reasonably be 
resold in the ordinary course of the equipment distributor's business;
    (2) Where the note is secured by passenger automobiles and light-
duty highway motor vehicles, the term of the note shall in no event 
exceed 48 months. For purposes of this proposed exemption, passenger 
automobiles and light-duty highway motor vehicles are defined as 
vehicles which have a gross weight of 10,000 pounds or less, are 
propelled by means of their own motor and are a type used for highway 
transportation; and
    (3) Where the note is secured by tangible personal property, other 
than heavy equipment or motor vehicles described in paragraph (h)(1) 
and (2) of this section, the term of the note shall in no event exceed 
36 months.
    (i) All records, information and data required to be maintained 
which relate to Plan investments in customer notes covered by this 
proposed exemption shall be unconditionally available at the customary 
location for examination during normal business hours by:
    (1) The Department of Labor,
    (2) The Internal Revenue Service,
    (3) Plan participants and beneficiaries, or
    (4) Any duly authorized employee or representative of a person 
described in subparagraph (1) through (3) above.
Section III. Definitions
    For purposes of this proposed exemption, the following definitions 
shall apply:
    (a) The terms, ``affiliate'' or ``affiliates,'' mean, with respect 
to an employer of employees covered by the Plan, any corporation that 
is, at the time the Plan acquires a customer note, a member of a 
controlled group of corporations (as defined in section 407(d)(7) of 
the Act and section 1563(a) of the Code), along with AMG and any other 
adopting employer.
    (b) The term ``customer note,'' means a two-party instrument, 
executed along with a security agreement for tangible personal 
property, which is accepted and held in connection with, and in the 
normal course of, an employer's (or affiliates's) primary business 
activity as a seller of such property. A two-party instrument is a 
promissory instrument used in connection with an extension of credit in 
which one party (the maker) promises to pay a second party (the payee) 
a sum of money.
    (c) The term ``Independent Fiduciary'' means a person or entity 
which is qualified to serve in that capacity (i.e., knowledgeable as to 
the duties and responsibilities as a fiduciary under the Act and 
knowledgeable as to the subject transaction) and which is independent 
of the party in interest engaging in the transaction and its 
affiliates.
    (d) The terms ``employer'' or ``adopting employer'' mean those 
entities which currently sponsor, or in the future will sponsor, the 
Plan and who have, or will have, employees that are participants in the 
Plan, and are considered an ``employer'' as that term is defined in 
section 3(5) of the Act.

Summary of Facts and Representations

    1. AMG is an Arizona corporation that deals in and services farming 
equipment and machinery. AMG sponsors the Arizona Machinery Group 
Employee's Profit Sharing Retirement Plan (i.e., the Plan), which is a 
multiple employer plan with several adopting companies. Although all 
the adopting employers are related, only two employers (AMG and Arizona 
Machinery, L.L.C.) are members of a ``controlled group'' of companies 
pursuant to the applicable provisions of the Code.\14\
---------------------------------------------------------------------------

    \14\ As of the date of this proposed exemption, five related 
companies have adopted the Plan. The applicant states that the 
requisite level of common ownership does not exist among the 
remaining adopting employers for them to constitute a ``controlled 
group'', as that term is defined under section 1563(a) of the Code. 
In this regard, the Department notes that section 407(d)(7) of the 
Act states that a corporation is an affiliate of an employer if it 
is a member of any controlled group of corporations (as defined in 
1563(a) of the Code, except that ``applicable percentage'' shall be 
substituted for ``80 percent'' wherever the latter appears in such 
section) of which the employer who maintains the plan is a member. 
For purposes of the preceding sentence, the term ``applicable 
percentage'' means 50 percent, or such lower percentage as the 
Secretary may prescribe.
---------------------------------------------------------------------------

    2. The Plan is a defined contribution profit sharing plan that was 
established in 1969. The trustee of the Plan, Mr. Roy Miller (the 
Trustee), is an Independent Fiduciary who will also be responsible for 
overseeing the proposed consolidated customer notes fund. The Plan 
provides pension benefits to approximately 161 active participants and 
41 terminated vested participants. For the year ending December 31, 
2001, net assets for the Plan totaled approximately $6,265,256. 
Effective as of January 1, 1993, the Plan established the AMCO Customer 
Notes Fund, which later became the AMG Customer Notes Fund (the AMG 
Notes Fund).\15\ Currently, the AMG Notes Fund invests exclusively in 
customer notes purchased from AMG. As of December 31, 2001, the Plan 
had approximately twenty-nine percent (29%) of the fair market value of 
its total assets invested in the AMG Notes Fund.
---------------------------------------------------------------------------

    \15\ Effective April 1, 2002, Arizona Machinery Company, Inc. 
changed its name to ``Arizona Machinery Group, Inc.,'' and the name 
of the Plan was recently amended to reflect the new name of the Plan 
sponsor, and to reflect the new Plan name.
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    3. The Plan provides for individual participant accounts and 
permits participants (or beneficiaries, where applicable) to exercise 
investment control over the assets in their

[[Page 23780]]

accounts.\16\ The AMG Notes Fund is invested in customer notes relating 
to farming equipment and machinery that is sold by AMG to customers, 
who are persons or entities unrelated to AMG, in the ordinary course of 
its business as a dealer in such equipment and machinery.\17\ The 
applicant represents that customers often purchase such items from AMG 
by giving AMG a note (i.e., a ``customer note'' as defined herein). The 
applicant also represents that for several years the Plan has offered 
the AMG Notes Fund as one of several investment options available to 
participants who are employed by AMG. The other investment options 
available under the Plan consist of stock and bond mutual funds, a 
money market fund, and a real estate fund.
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    \16\ The applicant represents that the Plan is a 404(c) plan, 
pursuant to the applicable provisions of the Act. Section 404(c) of 
the Act provides that if a pension plan that provides for individual 
accounts permits a participant or beneficiary to exercise control 
over assets in his or her account and that participant or 
beneficiary in fact exercises control over assets in his or her 
account, then the participant or beneficiary shall not be deemed a 
fiduciary by reason of his or her exercise of control and no person 
who is otherwise a fiduciary shall be liable for any loss, or by 
reason of any breach, which results from such exercise of control.
    The Department is providing no opinion in this proposed 
exemption as to whether the Plan would be considered an ``ERISA 
section 404(c) plan'' pursuant to section 404(c) of the Act and the 
regulations thereunder (see 29 CFR 2550.404c-1).
    The Department notes further that if a participant or 
beneficiary of an ERISA section 404(c) plan exercises independent 
control over assets in his or her individual account, in the manner 
described in the regulations thereunder (see 29 CFR 2550.404c-1(c)), 
then no other person who is a fiduciary with respect to such plan 
shall be liable for any loss, or with respect to any breach of Part 
4 of Title I of the Act, that is the direct and necessary result of 
that participant's or beneficiary's exercise of control. However, 
the regulations specify, in pertinent part, that this provision does 
not apply with respect to any instruction which, if implemented, 
would result in a direct or indirect sale, exchange, or lease of 
property between a plan sponsor or any affiliate of the sponsor and 
the plan except for the acquisition or disposition of any interest 
in a fund, subfund or portfolio managed by a plan sponsor or an 
affiliate of the sponsor, or the purchase and sale of any 
``qualifying employer security'' (as defined in section 407(d)(5) of 
the Act) which meets the conditions of 408(e) of the Act and 
conditions specified further in such regulations (see 29 CFR 
2550.404c-1(d)(2)(ii)(E)(4)).
    \17\ For purposes of the proposed exemption, the term ``customer 
note'' has the same meaning as set forth in Prohibited Transaction 
Exemption (PTE) 85-68, 50 FR 13293 (April 3, 1985). Section I of PTE 
85-68 provides that a ``customer note'' is a two-party instrument, 
executed along with a security agreement for tangible personal 
property, which is accepted in connection with, and in the normal 
course of, an employer's primary business activity as a seller of 
such property. A two-party instrument is a promissory instrument 
used in connection with the extension of credit in which one party 
(the maker) promises to pay a second party (the payee) a sum of 
money.
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    4. According to the applicant, the current operation of the AMG 
Notes Fund complies in all respects with the requirements of PTE 85-
68.\18\ The applicant represents that the AMG Notes Fund invests almost 
exclusively in customer notes purchased from AMG in accordance with PTE 
85-68. In this regard, the applicant states that to the extent the 
amount directed into the AMG Notes Fund by the participants exceeds the 
amount of available customer notes, the Plan will invest the money in 
short-term interest bearing investments.
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    \18\ PTE 85-68 permits a plan to acquire customer notes accepted 
by an employer of employees covered by the plan in the ordinary 
course of the employer's primary business activity. Among the 
conditions contained therein is a requirement that a plan may not 
invest more than 50% of its assets in customer notes and not over 
10% of its assets in the notes of a single customer. In addition, 
there are maximum terms ranging up to five years that are imposed on 
the notes, depending on the type of property being financed.
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    5. The applicant represents that the Independent Fiduciary for the 
Plan, Roy Miller (Mr. Miller), monitors the total amount invested in 
the AMG Notes Fund by each participant to ensure compliance with PTE 
85-68. Mr. Miller is an experienced trust officer, having served for a 
number of years in pension and profit sharing trust management and 
administration with institutional trust departments of major banks, 
prior to being retained as a full-time trustee and independent 
fiduciary for the Plan pursuant to a federal court order and settlement 
involving transactions unrelated to the Plan's acquisition and holding 
of customer notes. Mr. Miller has served as the Plan's trustee and 
Independent Fiduciary, for purposes of acquiring and monitoring 
customer notes pursuant to PTE 85-68, since 1992.\19\ The applicant 
states that Mr. Miller, as the Independent Fiduciary, continually 
monitors the customer notes held in the AMG Notes Fund to ensure that 
the notes are being repaid in accordance with PTE 85-68. The 
Independent Fiduciary performs a semi-annual review of all the customer 
notes including verification of the security for each note and 
compliance with the provisions of PTE 85-68. Additionally, the 
Independent Fiduciary must take appropriate action in order to 
safeguard Plan participants and beneficiaries in the event of a default 
of a customer note in the AMG Notes Fund. The applicant states that 
since the inception of the AMG Notes Fund in January 1993, there have 
been approximately 170 customer notes held by the Plan. None of these 
notes has incurred a default. However, the applicant states that two of 
the notes had become sufficiently delinquent so that AMG had to 
repurchase the notes from the Plan. With respect to these notes, AMG 
never had to make any payments on its guarantee to the Plan.
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    \19\ With respect to Mr. Miller's current role as the Plan's 
Independent Fiduciary, the applicant represents that if it becomes 
necessary in the future to appoint a successor Independent Fiduciary 
to replace Mr. Miller (the Successor), the applicant will notify the 
Department at least sixty (60) days in advance of the appointment of 
the Successor. The applicant states that the Successor will have the 
responsibilities, experience and independence similar to that of Mr. 
Miller.
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    6. AMG and the Independent Fiduciary state that the AMG Notes Fund 
is a popular investment choice with AMG's employees that are 
participants in the Plan. As of December 31, 2001, approximately 29% of 
the Plan's total assets, or approximately $1,800,000, was invested in 
the AMG Notes Fund. The applicant states that Plan participant demand 
for customer notes is significantly higher than AMG's current supply of 
good quality notes. If the proposed exemption is granted, AMG, as Plan 
sponsor, will establish a new consolidated customer notes fund (the 
Consolidated Notes Fund) that would be available to all adopting 
employers of the Plan and their corporate affiliates. The applicant 
represents that the Consolidated Notes Fund would be preferable to 
additional individual customer notes funds for the Plan. In this 
regard, the Consolidated Notes Fund would be less complicated to 
administer, would reduce the Plan's overall administrative expenses, 
and would allow better geographic diversification for the notes vis a 
vis the underlying investments (i.e., notes of various customers in 
different local economic regions).\20\ Thus, the Consolidated Notes 
Fund would enhance the security of the Plan participants' overall 
investments in customer notes.
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    \20\ With respect to the appropriate Plan fiduciary's 
determination to offer a customer notes fund (i.e., the Consolidated 
Notes Fund) as an investment choice for Plan participants, the 
Department notes that such decision would be subject to the 
fiduciary responsibility provisions of Part 4 of Title I of the Act 
including, among other things, section 404(a)(1). In addition, once 
a customer notes fund is selected as an investment option for the 
Plan's participants, the responsible fiduciary's duties would 
include prudently selecting the customer notes to be included in the 
Consolidated Notes Fund as well as taking appropriate actions to 
protect the Plan's interest in connection with delinquent customer 
notes.
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    7. The applicant represents that each transaction will be on terms 
that are at least as favorable to the Plan as an arm's-length 
transaction with an unrelated party.
    Prior to the consummation of any transaction described herein, the 
transaction will be approved on behalf of the Plan by an Independent 
Fiduciary. Such fiduciary will be independent of any of the sponsoring 
or

[[Page 23781]]

adopting employers, upon a determination made by the fiduciary that the 
other conditions of this exemption, if granted, will be satisfied. The 
Independent Fiduciary will acknowledge, in writing, his or her plan 
fiduciary status under the Act for each transaction. A person will be 
independent of an employer, even though he or she was selected by an 
adopting employer (or by a person with an interest in such employer), 
if he or she has no other interest in the transaction for which an 
exemption is sought that might affect his or her best judgment as a 
fiduciary under the Act.
    8. The Plan's continuing rights under the terms and conditions of 
the acquired customer notes, and under this proposed exemption, will be 
monitored and enforced on behalf of the Plan by the same or another 
Independent Fiduciary who is independent of any of the sponsoring or 
adopting employers and who has acknowledged his or her fiduciary status 
and liability as described herein. The Independent Fiduciary will be 
responsible for taking all appropriate actions necessary to protect the 
Plan's rights with regard to the safety and collection of the notes 
purchased by the Plan. These actions will include: (i) Ascertaining 
that payments are received timely; (ii) diligently pursuing the receipt 
of delinquent payments; and (iii) enforcing the employer's or 
affiliates' guarantees to repurchase delinquent notes, with accrued 
interest.
    9. The acquisition of a customer note from a Plan sponsor, an 
adopting employer, or an affiliate, will not cause the Plan to hold, 
immediately following the acquisition, more than: (i) twenty-five 
percent (25%), in the aggregate, of the current value of the Plan's 
assets in customer notes of such Plan sponsor, adopting employers or 
affiliates, or (ii) five percent (5%) of the current value of the 
Plan's assets in the notes of any one customer who is the obligor under 
such notes.
    The employer or affiliate from which the Plan acquires a customer 
note, as well as AMG (when the customer note was accepted and held by 
an employer other than AMG), will guarantee in writing the immediate 
repayment of the outstanding balance of the notes and accrued interest 
in the event that the note is more than 60 days in arrears or if other 
events occur that, in the opinion of the Independent Fiduciary, will 
impair the safety of the note as a Plan investment. The Independent 
Fiduciary may, at his or her discretion, grant an additional 30-day 
extension before repurchase of the note by an employer or affiliate is 
necessary upon a petition by the employer or affiliate, if the 
fiduciary determines, after consultation with the employer or 
affiliate, that such an extension is in the best interests of the 
participants and beneficiaries of the Plan. Other events of impairment 
will include:
    (a) The obligor on the note fails to comply with any terms or 
conditions of the note;
    (b) The obligor becomes insolvent, commits an act of bankruptcy, 
makes an assignment for the benefit of creditors or a liquidating 
agent, offers a composition or extension to creditors or makes a bulk 
sale;
    (c) Any proceeding, suit or action at law, in equity, or under any 
of the provisions of the Bankruptcy Code, or amendments thereto, for 
reorganization, composition, extension, arrangements, receivership, 
liquidation or dissolution is begun by or against the obligor;
    (d) A receiver of any property of the obligor is appointed under 
any jurisdiction at law or in equity; or
    (e) The obligor fails to take proper care of or abandons the 
property being financed by the note.
    The Plan will receive adequate security for each note. In this 
regard, the term ``adequate security'' will mean that each note will be 
secured by a perfected security interest in the property purchased by 
the obligor on the note so that if the security is foreclosed upon, or 
otherwise disposed of, in default of repayment of the loan, the value 
and liquidity of the security will be such that it may reasonably be 
anticipated that loss of principal or interest will not result. 
However, in no event will the term ``adequate security'' mean an 
interest in intangible personal property, such as accounts, contract 
rights, documents, instruments, chattel paper, and general intangibles.
    Insurance against loss or damage to the collateral from fire or 
other hazards will be procured and maintained by the obligor until the 
note is repaid or repurchased by the employer or affiliate which 
originally sold the note to the Plan, and the proceeds from such 
insurance will be assigned to the Plan.
    Repayment will be provided for in the following manner:
    (a) Where the note is secured by heavy equipment, the term of the 
note will not exceed 60 months. For purposes of this proposed 
exemption, heavy equipment will include machinery sold by equipment 
distributors such as earth moving, material handling, pipe laying, 
power generation, and construction machinery manufactured according to 
standard specifications. However, heavy equipment will not include any 
equipment which has been specifically designed and manufactured to a 
user's specifications and which cannot reasonably be resold in the 
ordinary course of the equipment distributor's business;
    (b) Where the note is secured by passenger automobiles and light-
duty highway motor vehicles, the term of the note will not exceed 48 
months. For purposes of this proposed exemption, passenger automobiles 
and light-duty highway motor vehicles are defined as vehicles which 
have a gross weight of 10,000 pounds or less, are propelled by means of 
their own motor and are a type used for highway transportation; and
    (c) Where the note is secured by tangible personal property, other 
than heavy equipment or motor vehicles as described herein, the term of 
the note will not exceed 36 months.
    10. In summary, the applicant represents that the proposed 
exemption will satisfy the statutory criteria under section 408(a) of 
the Act for the following reasons:
    (a) Each transaction will be on terms that are at least as 
favorable to the Plan as an arm's-length transaction with an unrelated 
party;
    (b) Prior to the consummation of any transaction described herein, 
the transaction will be approved on behalf of the Plan by an 
Independent Fiduciary, upon a determination made by such Independent 
Fiduciary that all of the conditions of this proposed exemption will be 
satisfied. The Independent Fiduciary will acknowledge, in writing, his 
or her fiduciary status for the Plan under the Act with respect to each 
transaction;
    (c) The Plan's continuing rights under the terms and conditions of 
the acquired customer notes, and under this proposed exemption, will be 
monitored and enforced on behalf of the Plan by an Independent 
Fiduciary, as described herein;
    (d) The acquisition of a customer note from either AMG, an adopting 
employer, or an affiliate, will not cause the Plan to hold, immediately 
following the acquisition, more than: (i) twenty-five percent (25%), in 
the aggregate, of the current value of the Plan's assets in customer 
notes of AMG, adopting employers or affiliates, or (ii) five percent 
(5%) of the current value of the Plan's assets in the notes of any one 
customer who is the obligor under such notes;
    (e) The employer or affiliate from which the Plan acquires a 
customer note, as well as AMG, will guarantee in writing the immediate 
repayment of the outstanding balance of the notes, and accrued interest 
thereon, in the event

[[Page 23782]]

that the note is more than 60 days in arrears or if other events occur 
that, in the opinion of the Independent Fiduciary, will impair the 
safety of the note as a Plan investment; and
    (f) The Plan will receive adequate security for each note. 
Additionally, insurance against loss or damage from fire or other 
hazards to the collateral underlying each note will be procured and 
maintained by the obligor until the note is repaid or repurchased by 
the employer or affiliate which originally sold the note to the Plan, 
and the proceeds from such insurance will be assigned to the Plan.

FOR FURTHER INFORMATION CONTACT: Mr. Brian J. Buyniski of the 
Department, telephone (202) 693-8545. (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 30th day of April, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-11012 Filed 5-2-03; 8:45 am]
BILLING CODE 4510-29-P