[Federal Register Volume 71, Number 226 (Friday, November 24, 2006)]
[Notices]
[Pages 67904-67914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19826]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11381]


Notice of Proposed Individual Exemption Involving the Bear 
Stearns Companies, Inc. (BS), Bear Stearns Asset Management, Inc. 
(BSAM), and Bear, Stearns & Co., Inc. (BSC) (collectively, the 
Applicants) Located in New York, NY

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed individual exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed individual exemption 
from certain prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and the Internal 
Revenue Code of 1986 (the Code). If granted, the proposed exemption 
would permit the purchase of certain securities (the Securities), by an 
asset management affiliate of BS from any person other than such asset 
management affiliate of BS or any affiliate thereof, during the 
existence of an underwriting or selling syndicate with respect to such 
Securities, where a

[[Page 67905]]

broker-dealer affiliated with BS (the Affiliated Broker-Dealer) is a 
manager or member of such syndicate and the asset management affiliate 
of BS purchases such Securities, as a fiduciary: (a) On behalf of an 
employee benefit plan or employee benefit plans (Client Plan(s)); or 
(b) on behalf of Client Plans, and/or in-house plans (In-House Plans) 
which are invested in a pooled fund or in pooled funds (Pooled 
Fund(s)); provided certain conditions as set forth, below are satisfied 
(an affiliated underwriter transaction (AUT)).\1\ The proposed 
exemption, if granted, would affect Client Plans and In-House Plans and 
their participants and beneficiaries.
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    \1\ For purposes of this proposed exemption an In-House Plan may 
engage in AUT's only through investment in a Pooled Fund.

DATES: Effective Date: If granted, this proposed exemption will be 
effective as of the date the final exemption is published in the 
Federal Register.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments and/
or requests for a public hearing on the pending exemption to the 
address, as set forth below, within the time frame, as set forth below. 
All comments and requests for a public hearing will be made a part of 
the record. Comments and hearing requests should state the reasons for 
the writer's interest in the proposed exemption. A request for a public 
hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing. 
Comments and hearing requests received will also be available for 
public inspection with the referenced application at the address, as 
set forth below.

DATES: Written comments and requests for a public hearing on the 
proposed exemption should be submitted to the Department within 45 days 
from the date of publication of this Federal Register Notice.

ADDRESSES: All written comments and requests for a public hearing 
concerning the proposed exemption should be sent to the Office of 
Exemptions Determinations, Employee Benefits Security Administration, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attention: Application No. D-11381. 
Alternatively, interested persons are invited to submit comments or 
hearing requests to the Department by e-mail to 
[email protected] or by facsimile at (202) 219-0204.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the Applicants 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: This document contains a notice of proposed 
individual exemption from the restrictions of section 406 of the Act 
and section 4975(c)(1)(A)-(F) of the Code. The proposed exemption has 
been requested in an application filed by BS, BSAM, and BSC, pursuant 
to 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, August 10, 1990). Effective December 31, 1978, section 
102 of Reorganization Plan No. 4 of 1978, (43 FR 47713, October 17, 
1978) transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type requested to the Secretary of Labor. 
Accordingly, this proposed exemption is being issued solely by the 
Department.
    The application pertaining to the proposed exemption contains 
representations with regard to the proposed exemption which are 
summarized below. Interested persons are referred to the application on 
file with the Department for a complete statement of the facts and 
representations. The application pertaining to the proposed exemption 
and the comments received will be available for public inspection in 
the Public Disclosure Room of the Employee Benefits Security 
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution 
Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc, Office of 
Exemption Determinations, Employee Benefits Security Administration, 
U.S. Department of Labor, telephone (202) 693-8540. (This is not a 
toll-free number.)

Summary of Facts and Representations

    1. The Applicants for the proposed exemption are BS, BSAM, and BSC. 
BSAM is an investment advisor registered with the Securities and 
Exchange Commission (SEC) under the Investment Advisors Act of 1940. 
BSC is registered with the SEC as both a broker-dealer and an 
investment advisor. BSAM and BSC are affiliates of BS.
    2. It is represented that the Applicants and their various 
affiliates are regulated by federal government agencies, such as the 
SEC, as well as by state government agencies, and industry self-
regulatory organizations (e.g., the New York Stock Exchange and the 
National Association of Securities Dealers).
    3. The Applicants request an exemption permitting the purchase of 
certain Securities by an asset management affiliate of BS, acting on 
behalf of Client Plans, subject to the Act or Code, and acting on 
behalf of Client Plans and In-House Plans which are invested in certain 
Pooled Funds for which an asset management affiliate of BS acts as a 
fiduciary, from any person other than such asset management affiliate 
of BS or any affiliate thereof, during the existence of an underwriting 
or selling syndicate with respect to such Securities, where an 
Affiliated Broker-Dealer is a manager or member of such syndicate. 
Further, the Affiliated Broker-Dealer will receive no selling 
concessions in connection with the securities sold to such plans.
    4. The Applicants represent that in accordance with Prohibited 
Transaction Class Exemption 75-1, 40 FR 50845 (October 31, 1975) (PTCE 
75-1), an asset management affiliate of BS may purchase underwritten 
securities for plans, where an Affiliated Broker-Dealer is a member of 
an underwriting or selling syndicate. In this regard, Part III of PTCE 
75-1 provides limited relief from the prohibited transaction provisions 
of the Act for plan fiduciaries that purchase securities from an 
underwriting or selling syndicate of which the fiduciary or an 
affiliate is a member. However, such relief is not available if the 
Affiliated Broker-Dealer manages the underwriting or selling syndicate.
    5. Further, PTE 75-1 does not provide relief for the purchase of 
unregistered securities. This includes those securities purchased by an 
underwriter for resale to a ``qualified institutional buyer'' (QIB) 
pursuant to the SEC's Rule 144A under the Securities Act of 1933 (the 
1933 Act). It is represented that Rule 144A is commonly utilized in 
connection with sales of securities issued by foreign corporations to 
U.S. investors that are QIBs. Notwithstanding the unregistered nature 
of such shares, it is represented that syndicates selling securities 
under Rule 144A (Rule 144A Securities) are the functional equivalent of 
those selling registered securities.
    6. The Applicants represent that the Affiliated Broker-Dealer 
regularly serves as a manager of underwriting or selling

[[Page 67906]]

syndicates for registered securities, and as a manager or a member of 
underwriting or selling syndicates for Rule 144A Securities. 
Accordingly, the asset management affiliate of BS is currently unable 
to purchase on behalf of Client Plans Securities sold in a Rule 144A 
Offering, resulting in such Client Plans being unable to participate in 
significant investment opportunities.
    7. It is represented that since 1975, there has been a significant 
consolidation in the financial services industry in the United States. 
As a result, there are more situations in which a plan fiduciary may be 
affiliated with the manager of an underwriting syndicate. Further, many 
plans have expanded investment portfolios in recent years to include 
securities issued by foreign corporations. As a result, the exemption 
provided in PTCE 75-1, Part III, is often unavailable for purchases of 
domestic and foreign securities that may otherwise constitute 
appropriate plan investments.
    8. The Applicants represent that the asset management affiliate of 
BS makes its investment decisions on behalf of, or renders investment 
advice to, Client Plans pursuant to the governing document of the 
particular Client Plan or Pooled Fund and the investment guidelines and 
objectives set forth in the management or advisory agreement. Because 
the Client Plans are covered by Title I of the Act, such investment 
decisions are subject to the fiduciary responsibility provisions of the 
Act.
    9. The Applicants state, therefore, that the decision to invest in 
a particular offering is made on the basis of price, value, and a 
Client Plan's investment criteria, not on whether the securities are 
currently being sold through an underwriting or selling syndicate. The 
Applicants further state that, because the compensation paid to the 
asset management affiliate of BS for its services is generally based 
upon assets under management, the asset management affiliate of BS has 
little incentive to purchase securities in an offering in which the 
Affiliated Broker-Dealer is an underwriter unless such a purchase is in 
the interests of Client Plans. If the assets under management do not 
perform well, the asset management affiliate of BS will receive less 
compensation and could lose clients, costs which far outweigh any gains 
from the purchase of underwritten securities. The Applicants point out 
that under the terms of the proposed exemption, the Affiliated Broker-
Dealer may receive no compensation or other consideration, direct or 
indirect, in connection with any transaction that would be permitted 
under the proposed exemption.
    10. The Applicants state that the asset management affiliate of BS 
generally purchases securities in large blocks because the same 
investments will be made across several accounts. If there is a new 
offering of an equity or fixed income security that the asset 
management affiliate of BS wishes to purchase, it may be able to 
purchase the security through the offering syndicate at a lower price 
than it would pay in the open market, without transaction costs and 
with reduced market impact if it is buying a relatively large quantity. 
This is because a large purchase in the open market can cause an 
increase in the market price and, consequently, in the cost of the 
securities. Purchasing from an offering syndicate can thus reduce the 
costs to the Client Plans.
    11. The Applicants point out that absent this proposed exemption, 
if the Affiliated Broker-Dealer is a manager of a syndicate that is 
underwriting a securities offering, the asset management affiliate will 
be foreclosed from purchasing any securities on behalf of its Client 
Plans from that underwriting syndicate. In this regard, the asset 
management affiliate would have to purchase the same securities in the 
secondary market. In such a circumstance, the Client Plans may incur 
greater costs both because the market price is often higher than the 
offering price, and because of transaction and market impact costs. In 
turn, this may cause the asset management affiliate to forego other 
investment opportunities because the purchase price of the underwritten 
security in the secondary market exceeds the price that the asset 
management affiliate would have paid to the selling syndicate.
    12. The Applicants represent that the Affiliated Broker-Dealer 
currently manages and participates in firm commitment underwriting 
syndicates for registered offerings of both equity and debt securities. 
While equity and debt underwritings may operate differently with regard 
to the actual sales process, the basic structures are the same. In a 
firm commitment underwriting, the underwriting syndicate acquires the 
securities from the issuer and then sells the securities to investors.
    13. The Applicants represent that while, as a legal matter, a 
selling syndicate assumes the risk that the underwritten securities 
might not be fully sold, as a practical matter, this risk is reduced, 
in marketed deals, through ``building a book'' (i.e., taking 
indications of interest from potential purchasers) prior to pricing the 
securities. Accordingly, there is no incentive for the underwriters to 
use their discretionary accounts (or the discretionary accounts of 
their affiliates) to buy up the securities as a way to avoid 
underwriting liabilities.
    14. It is represented that each selling syndicate has a lead 
manager, who is the principal contact between the syndicate and the 
issuer and who is responsible for organizing and coordinating the 
syndicate. The syndicate may also have co-managers, who generally 
assist the lead manager in working with the issuer to prepare the 
registration statement to be filed with the SEC and in distributing the 
underwritten securities. While equity syndicates typically include 
additional members that are not managers, more recently, membership in 
many debt syndicates has been limited to lead and co-managers.
    15. It is represented that if more than one underwriter is involved 
in a selling syndicate, the lead manager, who has been selected by the 
issuer of the underwritten securities, contacts other underwriters, and 
the underwriters enter into an ``Agreement Among Underwriters.'' Most 
lead managers have a standing form of agreement. This document is then 
supplemented for the particular deal by sending an ``invitation telex'' 
or ``terms telex'' that sets forth particular terms to the other 
underwriters.
    16. The arrangement between the syndicate and the issuer of the 
underwritten securities is embodied in an underwriting agreement, which 
is signed on behalf of the underwriters by one or more of the managers. 
In a firm commitment underwriting, the underwriting agreement provides, 
subject to certain closing conditions, that the underwriters are 
obligated to purchase the underwritten securities from the issuer in 
accordance with their respective commitments. This obligation is met by 
using the proceeds received from the buyers of the securities in the 
offering, although there is a risk that the underwriters will have to 
pay for a portion of the securities in the event that not all of the 
securities are sold.
    17. The Applicants represent that, generally, the risk that the 
securities will not be sold is small because the underwriting agreement 
is not executed until after the underwriters have obtained sufficient 
indications of interest to purchase the securities from a sufficient 
number of investors to assure that all the securities being offered 
will be acquired by investors. Once the underwriting agreement is

[[Page 67907]]

executed, the underwriters immediately begin contacting the investors 
to confirm the sales, at first by oral communication and then by 
written confirmation. Sales are finalized within hours and sometimes 
minutes. In registered transactions, the underwriters are particularly 
anxious to complete the sales as soon as possible because until they 
``break syndicate,'' they cannot enter the market. In many cases, the 
underwriters will act as market-makers for the security. A market-maker 
holds itself out as willing to buy or sell the security for its own 
account on a regular basis.
    18. The Applicants represent that the process of ``building a 
book'' or soliciting indications of interest occurs as follows: In a 
registered equity offering, after a registration statement is filed 
with the SEC and, while it is under review by the SEC staff, 
representatives of the issuer of the securities and the selling 
syndicate managers conduct meetings with potential investors, who learn 
about the company and the underwritten securities. Potential investors 
also receive a preliminary prospectus. The underwriters cannot make any 
firm sales until the registration statement is declared effective by 
the SEC. Prior to the effective date, while the investors cannot become 
legally obligated to make a purchase, they indicate whether they have 
an interest in buying, and the managers compile a ``book'' of investors 
who are willing to ``circle'' a particular portion of the issue. These 
indications of interest are sometimes referred to as a ``soft circle'' 
because investors cannot be legally bound to buy the securities until 
the registration statement is effective. However, the Applicants 
represent that investors generally follow through on their indications 
of interest, and would be expected to do so, barring any sudden adverse 
developments (in which case it is likely that the offering would be 
withdrawn or the price range modified and the process restarted), 
because, if the investors that gave an indication of interest do not 
follow through, the underwriters may be reluctant to include them in 
future offerings.
    19. Assuming that the marketing efforts have produced sufficient 
indications of interest, the Applicants represent that the issuer of 
the securities and the selling syndicate managers together will set the 
price of the securities and ask the SEC to declare the registration 
effective. After the registration statement becomes effective and the 
underwriting agreement is executed, the underwriters contact those 
investors that have indicated an interest in purchasing securities in 
the offering to execute the sales. The Applicants represent that 
offerings are often oversubscribed, and many have an over-allotment 
option that the underwriters can exercise to acquire additional shares 
from the issuer. Where an offering is oversubscribed, the underwriters 
decide how to allocate the securities among the potential purchasers. 
However, if an issue is a ``hot issue,'' (i.e., it is selling in the 
market at a premium above its offering price) the underwriters may not 
hold this hot issue in their own accounts, nor sell it to their 
employees, officers and directors. Subject to certain exceptions, a hot 
issue may also not be sold to the personal accounts of those 
responsible for investing for others, such as officers of banks, 
insurance companies, mutual funds, and investment advisers.
    20. The Applicants represent that debt offerings may be 
``negotiated'' offerings, ``competitive bid'' offerings, or ``bought 
deals.'' ``Negotiated'' offerings, which often involve non-investment 
grade securities, are conducted in the same manner as an equity 
offering with regard to when the underwriting agreement is executed and 
how the securities are offered. ``Competitive bid'' offerings, in which 
the issuer determines the price for the securities through competitive 
bidding rather than negotiating the price with the underwriting 
syndicate, are performed under ``shelf'' registration statements 
pursuant to the SEC's Rule 415 under the 1933 Act (17 CFR 230.415).\2\
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    \2\ Rule 415 permits an issuer to sell debt as well as equity 
securities under an effective registration statement previously 
filed with the SEC by filing a post-effective amendment or 
supplemental prospectus.
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    21. In a competitive bid offering, prospective lead underwriters 
will bid against one another to purchase debt securities, based upon 
their determinations of the degree of investor interest in the 
securities. Depending on the level of investor interest and the size of 
the offering, a bidding lead underwriter may bring in co-managers to 
assist in the sales process. Most of the securities are frequently sold 
within hours, or sometimes even less than an hour, after the securities 
are made available for purchase.
    22. It is represented that because of market forces and the 
requirements of Rule 415, the competitive bid process is generally 
available only to issuers of investment-grade securities who have been 
subject to the reporting requirements of the Securities Exchange Act of 
1934 (the 1934 Act) for at least one (1) year.
    23. Occasionally, in highly-rated debt issues, underwriters ``buy'' 
the entire deal off of a ``shelf registration'' before obtaining 
indications of interest. These ``bought'' deals involve issuers whose 
securities enjoy a deep and liquid secondary market, such that an 
underwriter has confidence without pre-marketing that it can identify 
purchasers for the bonds.
    24. The Applicants represent that there are internal policies in 
place that restrict contact and the flow of information between 
investment management personnel and non-investment management personnel 
in the same or affiliated financial service firms. These policies are 
designed to protect against ``insider trading,'' i.e., trading on 
information not available to the general public that may affect the 
market price of the securities. Diversified financial services firms 
must be concerned about insider trading problems because one part of 
the firm--e.g., the mergers and acquisitions group--could come into 
possession of non-public information regarding an upcoming transaction 
involving a particular issuer, while another part of the firm--e.g., 
the investment management group--could be trading in the securities of 
that issuer for its clients.
    25. The Applicants represent that their business separation 
policies and procedures are also structured to restrict the flow of any 
information to or from the asset management affiliate of BS that could 
limit its flexibility in managing client assets, and of information 
obtained or developed by the asset management affiliate of BS that 
could be used by other parts of the organization, to the detriment of 
the clients of the asset management affiliate of BS.
    26. The Applicants represent that major clients of the Affiliated 
Broker-Dealer include investment management firms that are competitors 
of the asset management affiliate of BS. Similarly, the asset 
management affiliate of BS deals on a regular basis with broker-dealers 
that compete with the Affiliated Broker-Dealer. If special 
consideration were shown to an affiliate, such conduct would likely 
have an adverse effect on the relationships of the Affiliated Broker-
Dealer and the asset management affiliate of BS with firms that compete 
with such affiliate. Therefore, a goal of the Applicants' business 
separation policies is to avoid any possible perception of improper 
flows of information between the Affiliated Broker-Dealer and the asset 
management affiliate of BS, in order to prevent any adverse impact on 
client and business relationships.

[[Page 67908]]

    27. The Applicants represent that the underwriters are compensated 
through the ``spread,'' or difference, between the price at which the 
underwriters purchase the securities from the issuer and the price at 
which the securities are sold to the public. The spread is divided into 
three components.
    28. The first component includes the management fee, which 
generally represents an agreed upon percentage of the overall spread 
and is allocated among the lead manager and co-managers. Where there is 
more than one managing underwriter, the way the management fee will be 
allocated among the managers is generally agreed upon between the 
managers and the issuer prior to soliciting indications of interest. 
Thus, the allocation of the management fee is not reflective of the 
amount of securities that a particular manager sells in an offering.
    29. The second component is the underwriting fee, which represents 
compensation to the underwriters (including the non-managers, if any) 
for the risks they assume in connection with the offering and for the 
use of their capital. This component of the spread is also used to 
cover the expenses of the underwriting that are not otherwise 
reimbursed by the issuer of the securities.
    30. The first and second components of the ``spread'' are received 
without regard to how the underwritten securities are allocated for 
sales purposes or to whom the securities are sold. The third component 
of the spread is the selling concession, which generally constitutes 
60% or more of the spread. The selling concession compensates the 
underwriters for their actual selling efforts. The allocation of 
selling concessions among the underwriters generally follows the 
allocation of the securities for sales purposes. However, a buyer of 
the underwritten securities may designate other broker-dealers (who may 
be other underwriters, as well as broker-dealers outside the syndicate) 
to receive the selling concessions arising from the securities they 
purchase.
    31. Securities are allocated for sales purposes into two 
categories. The first and larger category is the ``institutional pot,'' 
which is the pot of securities from which sales are made to 
institutional investors. Selling concessions for securities sold from 
the institutional pot are generally designated by the purchaser to go 
to particular underwriters or other broker-dealers. If securities are 
sold from the institutional pot, the selling syndicate managers 
sometimes receive a portion of the selling concessions, referred to as 
a ``fixed designation'' or an ``auto pot split'' attributable to 
securities sold in this category, without regard to who sold the 
securities or to whom they were sold. For securities covered by this 
proposed exemption, however, the Affiliated Broker-Dealer may not 
receive, either directly or indirectly, any compensation or 
consideration that is attributable to the fixed designation generated 
by purchases of securities by the asset management affiliate of BS on 
behalf of its Client Plans.
    32. The second category of allocated securities is ``retail,'' 
which are the securities retained by the underwriters for sale to their 
retail customers. The underwriters receive the selling concessions from 
their respective retail retention allocations. Securities may be 
shifted between the two categories based upon whether either category 
is oversold or undersold during the course of the offering.
    33. The Applicants represent that the inability of the Affiliated 
Broker-Dealer to receive any selling concessions, or any compensation 
attributable to the fixed designations generated by purchases of 
securities by the Client Plans of the asset management affiliate of BS, 
removes the primary economic incentive for the asset management 
affiliate of BS to make purchases that are not in the interests of its 
Client Plans from offerings for which the Affiliated Broker-Dealer is 
an underwriter. The reason is that the Affiliated Broker-Dealer will 
not receive any additional fees as a result of such purchases by the 
asset management affiliate of BS.
    34. The Applicants represent that a number of the offerings of Rule 
144A Securities in which the Affiliated Broker-Dealer participates 
represent good investment opportunities for the Client Plans of the 
asset management affiliate of BS. Particularly with respect to foreign 
securities, a Rule 144A offering may provide the least expensive and 
most accessible means for obtaining these securities. However, as 
discussed above PTE 75-1, Part III, does not cover Rule 144A 
Securities. Therefore, absent an exemption, the asset management 
affiliate of BS is foreclosed from purchasing such securities for its 
Client Plans in offerings in which the Affiliated Broker-Dealer 
participates.
    35. The Applicants state that Rule 144A acts as a ``safe harbor'' 
exemption from the registration provisions of the Securities Act for 
sales of certain types of securities to QIBs. QIBs include several 
types of institutional entities, such as employee benefit plans and 
commingled trust funds holding assets of such plans, which own and 
invest on a discretionary basis at least $100 million in securities of 
unaffiliated issuers.
    36. Any securities may be sold pursuant to Rule 144A except for 
those of the same class or similar to a class that is publicly traded 
in the United States, or certain types of investment company 
securities. This limitation is designed to prevent side-by-side public 
and private markets developing for the same class of securities and is 
the reason that Rule 144A transactions are generally limited to debt 
securities.
    37. Buyers of Rule 144A Securities must be able to obtain, upon 
request, basic information concerning the business of the issuer and 
the issuer's financial statements, much of the same information as 
would be furnished if the offering were registered. This condition does 
not apply, however, to an issuer filing reports with the SEC under the 
1934 Act, for which reports are publicly available. The condition also 
does not apply to a ``foreign private issuer'' for whom reports are 
furnished to the SEC under Rule 12g3-2(b) of the 1934 Act (17 CFR 
240.12g3-2(b)), or to issuers who are foreign governments or political 
subdivisions thereof and are eligible to use Schedule B under the 1933 
Act (which describes the information and documents required to be 
contained in a registration statement filed by such issuers).
    38. Sales under Rule 144A, like sales in a registered offering, 
remain subject to the protections of the anti-fraud rules of federal 
and state securities laws. These rules include Section 10(b) of the 
1934 Act and Rule 10b-5 thereunder (17 CFR 240.10b-5) and Section 17(a) 
of the 1933 Act (15 U.S.C. 77a). Through these and other provisions, 
the SEC may use its full range of enforcement powers to exercise its 
regulatory authority over the market for Rule 144A Securities, in the 
event that it detects improper practices.
    39. The Applicants represent that this potential liability for 
fraud provides a considerable incentive to the issuer of the securities 
and the members of the selling syndicate to insure that the information 
contained in a Rule 144A offering memorandum is complete and accurate 
in all material respects. Among other things, the lead manager 
typically obtains an opinion from a law firm, commonly referred to as a 
``l0b-5'' opinion, stating that the law firm has no reason to believe 
that the offering memorandum contains any untrue statement of material 
fact or omits to state a material fact necessary in order to make sure 
the statements made, in light of the circumstances under which they 
were made, are not misleading.
    40. The Applicants represent that Rule 144A offerings generally are

[[Page 67909]]

structured in the same manner as underwritten registered offerings. The 
major difference is that a Rule 144A offering uses an offering 
memorandum rather than a prospectus that is filed with the SEC. The 
marketing process is the same in most respects, except that the selling 
efforts are limited to contacting QIBs and there are no general 
solicitations for buyers (e.g., no general advertising). In addition, 
the role of the Affiliated Broker-Dealer in these offerings is 
typically that of a lead or co-manager. Generally, there are no non-
manager members in a Rule 144A selling syndicate. However, the 
Applicants request that the proposed exemption extend to authorization 
for situations where the Affiliated Broker-Dealer acts only as a 
syndicate member, not as a manager.
    41. The proposed exemption is administratively feasible. In this 
regard, compliance with the terms and conditions of the proposed 
exemption will be verifiable and subject to audit.
    42. The proposed exemption is in the interest of participants and 
beneficiaries of Client Plans that engage in the covered transactions. 
In this regard, it is represented that the proposed exemption will 
increase investment opportunities and will reduce administrative costs 
for Client Plans.
    43. The proposed exemption is protective of the rights of the 
participants and beneficiaries of affected Client Plans. In this 
regard, the notification and other requirements in the proposed 
exemption are similar to conditions set forth in other exemptions 
published by the Department in similar circumstances.
    44. In summary, it is represented that the proposed transactions 
meet the statutory criteria for an exemption under section 408(a) of 
the Act and section 4975(c)(2) of the Code because: (a) The Client 
Plans will gain access to desirable investment opportunities; (b) in 
each offering, the asset management affiliate of BS will purchase the 
securities for its Client Plans from an underwriter or broker-dealer 
other than the Affiliated Broker-Dealer; (c) conditions similar to 
those of PTE 75-1, Part III, will restrict the types of securities that 
may be purchased, the types of underwriting or selling syndicates and 
issuers involved, and the price and timing of the purchases; (d) the 
amount of securities that the asset management affiliate of BS may 
purchase on behalf of Client Plans will be subject to percentage 
limitations; (e) the Affiliated Broker-Dealer will not be permitted to 
receive, either directly, indirectly or through designation, any 
selling concession with respect to the securities sold to the asset 
management affiliate of BS for the account of a Client Plan; (f) prior 
to any purchase of securities, the asset management affiliate of BS 
will make the required disclosures to an independent fiduciary 
(Independent Fiduciary) of each Client Plan and obtain written 
authorization to engage in the covered transactions; (g) the asset 
management affiliate of BS will provide regular reporting to an 
Independent Fiduciary of each Client Plan with respect to all 
securities purchased pursuant to the proposed exemption; (h) each 
Client Plan will be subject to net asset requirements, with certain 
exceptions for Pooled Funds; and (i) the asset management affiliate of 
BS must have total assets under management in excess of $5 billion and 
shareholders' or partners' equity in excess of $1 million, in addition 
to qualifying as a QPAM, pursuant to Part V(a) of PTE 84-14.

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department of Labor (the Department) is considering 
granting an exemption under the authority of section 408(a) of the 
Employee Retirement Income Security Act of 1974 (the Act) and section 
4975(c)(2) of the Internal Revenue Code of 1986 (the Code) and in 
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B 
(55 FR 32836, 32847, August 10, 1990) as follows:

Section I--Transactions

    If the proposed exemption is granted, the restrictions of section 
406 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 
(F) of the Code, shall not apply to the purchase of certain securities 
(the Securities), as defined, below in Section III(h), by an asset 
management affiliate of BS, as ``affiliate'' is defined, below, in 
Section III(c), from any person other than such asset management 
affiliate of BS or any affiliate thereof, during the existence of an 
underwriting or selling syndicate with respect to such Securities, 
where a broker-dealer affiliated with BS (the Affiliated Broker-
Dealer), as defined, below, in Section III(b), is a manager or member 
of such syndicate and the asset management affiliate of BS purchases 
such Securities, as a fiduciary:
    (a) on behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined, below, in Section III(e); or
    (b) on behalf of Client Plans, and/or In-House Plans, as defined, 
below, in Section III(q), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined, below, in Section III(f); 
provided that the conditions as set forth, below, in Section II, are 
satisfied (An affiliated underwriter transaction (AUT)).\3\
---------------------------------------------------------------------------

    \3\ For purposes of this proposed exemption an In-House Plan may 
engage in AUT's only through investment in a Pooled Fund.
---------------------------------------------------------------------------

Section II--Conditions

    The proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following requirements:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et. seq.). If the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or
    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible 
Rule 144A Offering of the Securities is of equity securities, the 
offering syndicate shall obtain a legal opinion regarding the adequacy 
of the disclosure in the offering memorandum;
    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights,

[[Page 67910]]

they may be purchased on or before the fourth day preceding the day on 
which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, unless--
    (1) Such Securities are non-convertible debt securities rated in 
one of the four highest rating categories by at least one nationally 
recognized statistical rating organization, i.e., Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors (collectively, the 
Rating Organizations); or
    (2) Such Securities are issued or fully guaranteed by a person 
described, above, in Section II(a)(1)(i)(A); or
    (3) Such Securities are fully guaranteed by a person described, 
above, in Section II(a)(1)(i)(B), (C), or (D), who has issued the 
Securities and who has been in continuous operation for not less than 
three years, including the operation of any predecessors.
    (c) The aggregate amount of Securities of an issue purchased, 
pursuant to this exemption, by the asset management affiliate of BS 
with: (i) The assets of all Client Plans; and (ii) the assets, 
calculated on a pro-rata basis, of all Client Plans and In-House Plans 
investing in Pooled Funds managed by the asset management affiliate of 
BS; and (iii) the assets of plans to which the asset management 
affiliate of BS renders investment advice within the meaning of 29 CFR 
2510.3-21(c) does not exceed:
    (1) 10 percent (10%) of the total amount of the Securities being 
offered in an issue, if such Securities are equity securities;
    (2) 35 percent (35%) of the total amount of the Securities being 
offered in an issue, if such Securities are debt securities rated in 
one of the four highest rating categories by at least one of the Rating 
Organizations; provided that none of the Rating Organizations rates 
such Securities in a category lower than the fourth highest rating 
category; or
    (3) 25 percent (25%) of the total amount of the Securities being 
offered in an issue, if such Securities are debt securities rated in 
the fifth or sixth highest rating categories by at least one of the 
Rating Organizations; provided that none of the Rating Organizations 
rates such Securities in a category lower than the sixth highest rating 
category; and
    (4) The assets of any single Client Plan (and the assets of any 
Client Plans and any In-House Plans investing in Pooled Funds) may not 
be used to purchase any Securities being offered, if such Securities 
are debt securities rated lower than the sixth highest rating category 
by any of the Rating Organizations;
    (5) Notwithstanding the percentage of Securities of an issue 
permitted to be acquired, as set forth in Section II(c)(1), (2), and 
(3), above, of this exemption, the amount of Securities in any issue 
(whether equity or debt securities) purchased, pursuant to this 
exemption, by the asset management affiliate of BS on behalf of any 
single Client Plan, either individually or through investment, 
calculated on a pro-rata basis, in a Pooled Fund may not exceed three 
percent (3%) of the total amount of such Securities being offered in 
such issue, and;
    (6) If purchased in an Eligible Rule 144A Offering, the total 
amount of the Securities being offered for purposes of determining the 
percentages, described above, in Section II(c)(1)-(3) and (5), is the 
total of:
    (i) The principal amount of the offering of such class of 
Securities sold by underwriters or members of the selling syndicate to 
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A 
(17 CFR 230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class of 
Securities in any concurrent public offering.
    (d) The aggregate amount to be paid by any single Client Plan in 
purchasing any Securities which are the subject of this exemption, 
including any amounts paid by any Client Plan or In-House Plan in 
purchasing such Securities through a Pooled Fund, calculated on a pro-
rata basis, does not exceed three percent (3%) of the fair market value 
of the net assets of such Client Plan or In-House Plan, as of the last 
day of the most recent fiscal quarter of such Client Plan or In-House 
Plan prior to such transaction.
    (e) The covered transactions are not part of an agreement, 
arrangement, or understanding designed to benefit the asset management 
affiliate of BS or an affiliate.
    (f) The Affiliated Broker-Dealer does not receive, either directly, 
indirectly, or through designation, any selling concession, or other 
compensation or consideration that is based upon the amount of 
Securities purchased by any single Client Plan, or that is based on the 
amount of Securities purchased by Client Plans or In-House Plans 
through Pooled Funds, pursuant to this exemption. In this regard, the 
Affiliated Broker-Dealer may not receive, either directly or 
indirectly, any compensation or consideration that is attributable to 
the fixed designations generated by purchases of the Securities by the 
asset management affiliate of BS on behalf of any single Client Plan or 
any Client Plan or In-House Plan in Pooled Funds.
    (g)(1) The amount the Affiliated Broker-Dealer receives in 
management, underwriting, or other compensation or consideration is not 
increased through an agreement, arrangement, or understanding for the 
purpose of compensating the Affiliated Broker-Dealer for foregoing any 
selling concessions for those Securities sold pursuant to this 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the asset management affiliate of BS on behalf 
of any single Client Plan, or on behalf of any Client Plan or In-House 
Plan participating in Pooled Funds, pursuant to this exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the asset 
management affiliate of BS a written certification, signed by an 
officer of the Affiliated Broker-Dealer, stating the amount that the 
Affiliated Broker-Dealer received in compensation or consideration 
during the past quarter, in connection with any offerings covered by 
this exemption, was not adjusted in a manner

[[Page 67911]]

inconsistent with Section II(e), (f), or (g) of this exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined, below, in 
Section III(g).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described, above, in Section 
II(h), the following information and materials (which may be provided 
electronically) must be provided by the asset management affiliate of 
BS to such Independent Fiduciary:
    (1) A copy of the Notice of Proposed Exemption (the Notice) and a 
copy of the final exemption as published in the Federal Register; and
    (2) Any other reasonably available information regarding the 
covered transactions that such Independent Fiduciary requests the asset 
management affiliate of BS to provide.
    (j) Subsequent to the initial authorization by an Independent 
Fiduciary of a single Client Plan permitting the asset management 
affiliate of BS to engage in the covered transactions on behalf of such 
single Client Plan, the asset management affiliate of BS will continue 
to be subject to the requirement to provide within a reasonable period 
of time any reasonably available information regarding the covered 
transactions that the Independent Fiduciary requests the asset 
management affiliate of BS to provide.
    (k)(1) In the case of an existing employee benefit plan investor 
(or existing In-House Plan investor, as the case may be) in a Pooled 
Fund, such Pooled Fund may not engage in any covered transactions 
pursuant to this exemption, unless the asset management affiliate of BS 
provides the written information, as described, below, and within the 
time period described, below, in this Section II(k)(2), to the 
Independent Fiduciary of each such plan participating in such Pooled 
Fund (and to the fiduciary of each such In-House Plan participating in 
such Pooled Fund).
    (2) The following information and materials (which may be provided 
electronically) shall be provided by the asset management affiliate of 
BS not less than 45 days prior to such asset management affiliate of BS 
engaging in the covered transactions on behalf of a Pooled Fund, 
pursuant to this exemption:
    (i) A notice of the intent of such Pooled Fund to purchase 
Securities pursuant to this exemption, a copy of this Notice, and a 
copy of the final exemption, as published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary of a plan (or 
fiduciary of an In-House Plan) participating in a Pooled Fund requests 
the asset management affiliate of BS to provide; and
    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of a plan (or fiduciary of an In-House Plan) 
participating in a Pooled Fund to terminate such plan's (or In-House 
Plan's) investment in such Pooled Fund without penalty to such plan (or 
In-House Plan). Such form shall include instructions specifying how to 
use the form. Specifically, the instructions will explain that such 
plan (or such In-House Plan) has an opportunity to withdraw its assets 
from a Pooled Fund for a period of no more than 30 days after such 
plan's (or such In-House Plan's) receipt of the initial notice of 
intent, described, above, in Section II(k)(2)(i), and that the failure 
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the asset management 
affiliate of BS in the case of a plan (or In-House Plan) participating 
in a Pooled Fund by the specified date shall be deemed to be an 
approval by such plan (or such In-House Plan) of its participation in 
the covered transactions as an investor in such Pooled Fund.
    Further, the instructions will identify BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer and will provide the 
address of the asset management affiliate of BS. The instructions will 
state that this exemption may be unavailable, unless the fiduciary of 
each plan participating in the covered transactions as an investor in a 
Pooled Fund is, in fact, independent of BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer. The instructions 
will also state that the fiduciary of each such plan must advise the 
asset management affiliate of BS, in writing, if it is not an 
``Independent Fiduciary,'' as that term is defined, below, in Section 
III(g).
    For purposes of this Section II(k), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this exemption for each plan be 
independent of the asset management affiliate of BS shall not apply in 
the case of an In-House Plan.
    (l)(1) In the case of each plan (and in the case of each In-House 
Plan) whose assets are proposed to be invested in a Pooled Fund after 
such Pooled Fund has satisfied the conditions set forth in this 
exemption to engage in the covered transactions, the investment by such 
plan (or by such In-House Plan) in the Pooled Fund is subject to the 
prior written authorization of an Independent Fiduciary representing 
such plan (or the prior written authorization by the fiduciary of such 
In-House Plan, as the case may be), following the receipt by such 
Independent Fiduciary of such plan (or by the fiduciary of such In-
House Plan, as the case may be) of the written information described, 
above, in Section II(k)(2)(i) and (ii).
    (2) For purposes of this Section II(l), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this exemption for each plan 
proposing to invest a Pooled Fund be independent of BS and its 
affiliates shall not apply in the case of an In-House Plan, as defined, 
below, in Section III(l).
    (m) Subsequent to the initial authorization by an Independent 
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest 
in a Pooled Fund that engages in the covered transactions, the asset 
management affiliate of BS will continue to be subject to the 
requirement to provide within a reasonable period of time any 
reasonably available information regarding the covered transactions 
that the Independent Fiduciary of such plan (or the fiduciary of such 
In-House Plan, as the case may be) requests the asset management 
affiliate of BS to provide.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the asset 
management affiliate of BS shall furnish:
    (1) In the case of each single Client Plan that engages in the 
covered transactions, the information described, below, in this Section 
II(n)(3)-(7), to the Independent Fiduciary of each such single Client 
Plan.
    (2) In the case of each Pooled Fund in which a Client Plan (or in 
which an In-House Plan) invests, the information described, below, in 
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each 
such Client Plan (and to the fiduciary of each such In-House Plan) 
invested in such Pooled Fund.
    (3) A quarterly report (the Quarterly Report) (which may be 
provided electronically) which discloses all the Securities purchased 
pursuant to the exemption during the period to which such report 
relates on behalf of the Client Plan, In-House Plan, or Pooled Fund to 
which such report relates, and which discloses the terms of each of the

[[Page 67912]]

transactions described in such report, including:
    (i) The type of Securities (including the rating of any Securities 
which are debt securities) involved in each transaction;
    (ii) The price at which the Securities were purchased in each 
transaction;
    (iii) The first day on which any sale was made during the offering 
of the Securities;
    (iv) The size of the issue of the Securities involved in each 
transaction;
    (v) The number of Securities purchased by the asset management 
affiliate of BS for the Client Plan, In-House Plan, or Pooled Fund to 
which the transaction relates;
    (vi) The identity of the underwriter from whom the Securities were 
purchased for each transaction;
    (vii) The underwriting spread in each transaction (i.e., the 
difference, between the price at which the underwriter purchases the 
securities from the issuer and the price at which the securities are 
sold to the public);
    (viii) The price at which any of the Securities purchased during 
the period to which such report relates were sold; and
    (ix) The market value at the end of the period to which such report 
relates of the Securities purchased during such period and not sold;
    (4) The Quarterly Report contains:
    (i) a representation that the asset management affiliate of BS has 
received a written certification signed by an officer of the Affiliated 
Broker-Dealer, as described, above, in Section II(g)(2), affirming 
that, as to each AUT covered by this exemption during the past quarter, 
the Affiliated Broker-Dealer acted in compliance with Section II(e), 
(f), and (g) of this exemption, and
    (ii) a representation that copies of such certifications will be 
provided upon request;
    (5) A disclosure in the Quarterly Report that states that any other 
reasonably available information regarding a covered transaction that 
an Independent Fiduciary (or fiduciary of an In-House Plan) requests 
will be provided, including, but not limited to:
    (i) The date on which the Securities were purchased on behalf of 
the Client Plan (or the In-House Plan) to which the disclosure relates 
(including Securities purchased by Pooled Funds in which such Client 
Plan (or such In-House Plan) invests;
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans (and the pro-rata percentage purchased on behalf of Client 
Plans and In-House Plans investing in Pooled Funds); and
    (iii) The identity of all members of the underwriting syndicate;
    (6) The Quarterly Report discloses any instance during the past 
quarter where the asset management affiliate of BS was precluded for 
any period of time from selling Securities purchased under this 
exemption in that quarter because of its status as an affiliate of an 
Affiliated Broker-Dealer and the reason for this restriction;
    (7) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each single Client Plan 
that engages in the covered transactions that the authorization to 
engage in such covered transactions may be terminated, without penalty 
to such single Client Plan, within five (5) days after the date that 
the Independent Fiduciary of such single Client Plan informs the person 
identified in such notification that the authorization to engage in the 
covered transactions is terminated; and
    (8) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each Client Plan (and to 
the fiduciary of each In-House Plan) that engages in the covered 
transactions through a Pooled Fund that the investment in such Pooled 
Fund may be terminated, without penalty to such Client Plan (or such 
In-House Plan), within such time as may be necessary to effect the 
withdrawal in an orderly manner that is equitable to all withdrawing 
plans and to the non-withdrawing plans, after the date that that the 
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such 
notification that the investment in such Pooled Fund is terminated.
    (o) For purposes of engaging in covered transactions, each Client 
Plan (and each In-House Plan) shall have total net assets with a value 
of at least $50 million (the $50 Million Net Asset Requirement). For 
purposes of engaging in covered transactions involving an Eligible Rule 
144A Offering,\4\ each Client Plan (and each In-House Plan) shall have 
total net assets of at least $100 million in securities of issuers that 
are not affiliated with such Client Plan (or such In-House Plan, as the 
case may be) (the $100 Million Net Asset Requirement).
---------------------------------------------------------------------------

    \4\ SEC Rule 10f-3(a)(4), 17 CFR 270.10f-3(a)(4), states that 
the term ``Eligible Rule 144A Offering'' means an offering of 
securities that meets the following conditions:
    (i) The securities are offered or sold in transactions exempt 
from registration under section 4(2) of the Securities Act of 1933 
[15 U.S.C. 77d(d)], rule 144A there under [Sec.  230.144A of this 
chapter], or rules 501-508 there under [Sec. Sec.  230.501-230-508 
of this chapter];
    (ii) The securities are sold to persons that the seller and any 
person acting on behalf of the seller reasonably believe to include 
qualified institutional buyers, as defined in Sec.  230.144A(a)(1) 
of this chapter; and
    (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to 
other qualified institutional buyers pursuant to Sec.  230.144A of 
this chapter.
---------------------------------------------------------------------------

    For purposes of a Pooled Fund engaging in covered transactions, 
each Client Plan (and each In-House Plan) in such Pooled Fund shall 
have total net assets with a value of at least $50 million. 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets with 
a value of at least $50 million, the $50 Million Net Asset Requirement 
will be met, if 50 percent (50%) or more of the units of beneficial 
interest in such Pooled Fund are held by Client Plans (or by In-House 
Plans) each of which has total net assets with a value of at least $50 
million. For purposes of a Pooled Fund engaging in covered transactions 
involving an Eligible Rule 144A Offering, each Client Plan (and each 
In-House Plan) in such Pooled Fund shall have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or such In-House Plan, as the case may be). 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or In-House Plan, as the case may be), the $100 
Million Net Asset Requirement will be met if 50 percent (50%) or more 
of the units of beneficial interest in such Pooled Fund are held by 
Client Plans (or by In-House Plans) each of which have total net assets 
of at least $100 million in securities of issuers that are not 
affiliated with such Client Plan (or such In-House Plan, as the case 
may be), and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
    For purposes of the net asset requirements described, above, in 
this Section II(o), where a group of Client Plans is maintained by a 
single employer or controlled group of employers, as defined in section 
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the 
case of an Eligible Rule 144A Offering, the $100 Million Net Asset 
Requirement) may be met by aggregating the assets of such Client Plans, 
if the assets of such Client Plans are pooled for investment purposes 
in a single master trust.
    (p) The asset management affiliate of BS qualifies as a ``qualified 
professional asset manager'' (QPAM), as that term is defined under Part 
V(a) of PTE 84-14. Notwithstanding the fact that the asset

[[Page 67913]]

management affiliate of BS satisfies the requirements, as set forth in 
Part V(a) of PTE 84-14, such asset management affiliate of BS must also 
have total client assets under its management and control in excess of 
$5 billion, as of the last day of its most recent fiscal year and 
shareholders' or partners' equity in excess of $1 million. Furthermore, 
the requirement that the asset management affiliate of BS must have 
total client asset under its management and control in excess of $5 
billion, as of the last day of it most recent fiscal year and 
shareholders' or partners' equity in excess of $1 million, as set forth 
in this Section II(p), applies whether such asset management affiliate 
of BS, qualifies as a QPAM, pursuant to Part V(a)(1), (a)(2), (a)(3) or 
(a)(4) of PTE 84-14.
    (q) No more than 20 percent of the assets of a Pooled Fund at the 
time of a covered transaction, are comprised of assets of In-House 
Plans for which BS, the asset management affiliate of BS, the 
Affiliated Broker-Dealer, or an affiliate exercises investment 
discretion.
    (r) The asset management affiliate of BS, and the Affiliated 
Broker-Dealer, as applicable, maintain, or cause to be maintained, for 
a period of six (6) years from the date of any covered transaction such 
records as are necessary to enable the persons, described, below, in 
Section II(s), to determine whether the conditions of this exemption 
have been met, except that--
    (1) No party in interest with respect to a plan which engages in 
the covered transactions, other than BS, the asset management affiliate 
of BS, and the Affiliated Broker-Dealer, as applicable, shall be 
subject to a civil penalty under section 502(i) of the Act or the taxes 
imposed by section 4975(a) and (b) of the Code, if such records are not 
maintained, or not available for examination, as required, below, by 
Section II(s); and
    (2) A prohibited transaction shall not be considered to have 
occurred if, due to circumstances beyond the control of the asset 
management affiliate of BS, or the Affiliated Broker-Dealer, as 
applicable, such records are lost or destroyed prior to the end of the 
six-year period.
    (s)(1) Except as provided, below, in Section II(s)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in Section II(r) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described, above, in Section II(s)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the asset 
management affiliate of BS, or the Affiliated Broker-Dealer, or 
commercial or financial information which is privileged or 
confidential; and
    (3) Should the asset management affiliate of BS, or the Affiliated 
Broker-Dealer refuse to disclose information on the basis that such 
information is exempt from disclosure, pursuant to Section II(s)(2), 
above, the asset management affiliate of BS shall, by the close of the 
thirtieth (30th) day following the request, provide a written notice 
advising that person of the reasons for the refusal and that the 
Department may request such information.

Section III--Definitions

    (a) The term, ``the Applicants,'' means BS, BSAM, and BSC.
    (b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer 
affiliate, as ``affiliate'' is defined, below, in Section III(c), of 
the Applicants, as ``Applicants'' are defined, above, in Section 
III(a), that meets the requirements of this exemption. Such Affiliated 
Broker-Dealer may participate in an underwriting or selling syndicate 
as a manager or member. The term, ``manager,'' means any member of an 
underwriting or selling syndicate who, either alone or together with 
other members of the syndicate, is authorized to act on behalf of the 
members of the syndicate in connection with the sale and distribution 
of the Securities, as defined, below, in Section III(h), being offered 
or who receives compensation from the members of the syndicate for its 
services as a manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (e) The term, ``Client Plan(s),'' means an employee benefit plan(s) 
that is subject to the Act and/or the Code, and for which plan(s) an 
asset management affiliate of BS exercises discretionary authority or 
discretionary control respecting management or disposition of some or 
all of the assets of such plan(s), but excludes In-House Plans, as 
defined, below, in Section III(l).
    (f) The term, ``Pooled Fund(s),'' means a common or collective 
trust fund(s) or a pooled investment fund(s): (i) In which employee 
benefit plan(s) subject to the Act and/or Code invest, (ii) which is 
maintained by an asset management affiliate of BS, (as the term, 
``affiliate'' is defined, above, in Section III(c)), and (iii) for 
which such asset management affiliate of BS exercises discretionary 
authority or discretionary control respecting the management or 
disposition of the assets of such fund(s).
    (g)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a 
plan who is unrelated to, and independent of BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer. For purposes of this 
exemption, a fiduciary of a plan will be deemed to be unrelated to, and 
independent of BS, the asset management affiliate of BS, and the 
Affiliated Broker-Dealer, if such fiduciary represents that neither 
such fiduciary, nor any individual responsible for the decision to 
authorize or terminate authorization for the transactions described, 
above, in Section I of this exemption, is an officer, director, or 
highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of BS, the asset management affiliate of BS, 
or the Affiliated Broker-Dealer, and represents that such fiduciary 
shall advise the asset management affiliate of BS within a reasonable 
period of time after any change in such facts occur.
    (2) Notwithstanding anything to the contrary in this Section 
III(g), a fiduciary of a plan is not independent:
    (i) If such fiduciary directly or indirectly controls, is 
controlled by, or is under common control with BS, the asset management 
affiliate of BS, or the Affiliated Broker-Dealer;

[[Page 67914]]

    (ii) If such fiduciary directly or indirectly receives any 
compensation or other consideration from BS, the asset management 
affiliate of BS, or the Affiliated Broker-Dealer for his or her own 
personal account in connection with any transaction described in this 
exemption;
    (iii) If any officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset 
management affiliate of BS responsible for the transactions described, 
above, in Section I of this exemption, is an officer, director, or 
highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the 
fiduciary responsible for the decision to authorize or terminate 
authorization for the transactions described, above, in Section I. 
However, if such individual is a director of the sponsor of the plan or 
of the responsible fiduciary, and if he or she abstains from 
participation in: (A) The choice of the plan's investment manager/
adviser; and (B) the decision to authorize or terminate authorization 
for transactions described, above, in Section I, then Section 
III(g)(2)(iii) shall not apply.
    (3) The term, ``officer,'' means a president, any vice president in 
charge of a principal business unit, division, or function (such as 
sales, administration, or finance), or any other officer who performs a 
policy-making function for BS or any affiliate thereof.
    (h) The term, ``Securities,'' shall have the same meaning as 
defined in section 2(36) of the Investment Company Act of 1940 (the 
1940 Act), as amended (15 U.S.C. 80a-2(36)(1996)). For purposes of this 
exemption, mortgage-backed or other asset-backed securities rated by 
one of the Rating Organizations, as defined, below, in Section III(k), 
will be treated as debt securities.
    (i) The term, ``Eligible Rule 144A Offering,'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act).
    (j) The term, ``qualified institutional buyer,'' or the term, 
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17 
CFR 230.144A(a)(1)) under the 1933 Act).
    (k) The term, ``Rating Organizations,'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors.
    (l) The term, ``In-House Plan(s),'' means an employee benefit 
plan(s) that is subject to the Act and/or the Code, and that is 
sponsored by the Applicants, as defined, above, in Section III(a) for 
their own employees.
    The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application for exemption are true and complete and accurately describe 
all material terms of the transactions. In the case of continuing 
transactions, if any of the material facts or representations described 
in the applications change, the exemption will cease to apply as of the 
date of such change. In the event of any such change, an application 
for a new exemption must be made to the Department.

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 does not relieve a fiduciary or other 
party in interest or disqualified person from certain other provisions 
of the Act, 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 require, among other 
things, a fiduciary to discharge his or her 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;
    (2) Before an exemption can be granted under section 408(a) of the 
Act, the Department must find that the exemption is administratively 
feasible, in the interest of the plan and of its participants and 
beneficiaries and protective of the rights of participants and 
beneficiaries of the plan; and
    (3) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act, including 
statutory or administrative exemptions. 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.

    Signed at Washington, DC, this 20th day of November, 2006.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E6-19826 Filed 11-22-06; 8:45 am]
BILLING CODE 4510-29-P