Skip to page content
Secretary of Labor Thomas E. Perez
Proposed Exemptions; Deutsche Bank AG, et al. (Deutsche Bank) [Notices] [02/01/2000]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Deutsche Bank AG, et al. (Deutsche Bank) [02/01/2000]

[PDF Version]

Volume 65, Number 21, Page 4843-4852


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10384, et al.]

 
Proposed Exemptions; Deutsche Bank AG, et al. (Deutsche Bank)

AGENCY:  Pension and Welfare Benefits Administration, Labor

ACTION:  Notice of proposed exemptions.

-----------------------------------------------------------------------

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

    Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing within 45 days from the date of 
publication of this Federal Register Notice. Comments and requests for 
a hearing should state: (1) The name, address, and telephone number of 
the person making the comment or request, and (2) the nature of the 
person's interest in the exemption and the manner in which the person 
would be adversely affected by the exemption. A request for a hearing 
must also state the issues to be addressed and include a general 
description of the evidence to be presented at the hearing.

ADDRESSES:  All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210. 
Attention: Application No. stated in each Notice of Proposed Exemption. 
The applications for exemption and the comments received will be 
available for public inspection in the Public Documents Room of Pension 
and Welfare Benefits Administration, U.S. Department of Labor, Room N-
5507, 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, 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.

[[Page 4844]]

Deutsche Bank AG, et al. (Deutsche Bank) Located in New York, NY

[Application No. D-10384]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, 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. Covered Transactions
    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to (1) the sale to employee benefit plans (the 
Plans) of a synthetic guaranteed investment contract (the Buy & Hold 
Synthetic GIC) offered by Deutsche Bank, which is or may become a party 
in interest with respect to the Plans; and (2) extensions of credit by 
Deutsche Bank to the Plans for the purpose of funding benefit 
withdrawals.
    This proposed exemption is conditioned on the requirements set 
forth below in Section II.

Section II. General Conditions

    (a) The decision to enter into a Buy & Hold Synthetic GIC is made 
on behalf of a participating Plan in writing by a fiduciary of such 
Plan which is independent of Deutsche Bank.
    (b) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to purchase Buy & Hold Synthetic 
GICs; 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 has purchased a Buy & Hold Synthetic 
GIC, the foregoing $50 million requirement is 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, or
    (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 entity has purchased a Buy & Hold Synthetic GIC, the foregoing 
$50 million requirement is deemed 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--
    (A) Has full investment responsibility with respect to Plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to Plan investment in the 
commingled entity, which are in excess of $100 million.
    (c) Prior to the execution of a Buy & Hold Synthetic GIC, the 
independent Plan fiduciary receives a full and detailed written 
disclosure of all material features concerning the Buy & Hold Synthetic 
GIC, including--
    (1) A copy of the contract (the Contract), underlying the Buy & 
Hold Synthetic GIC, which has been executed by Deutsche Bank and the 
Plan fiduciary, which stipulates the relevant provisions of such 
instrument, the interest rate that is credited (the Crediting Rate) to 
the book value account (the Book Value Account) of the Buy & Hold 
Synthetic GIC, the applicable fees and the rights and obligations of 
the parties;
    (2) Information explaining in a manner calculated to be understood 
by a Plan fiduciary that if adverse market conditions occur, that the 
Crediting Rate to the Book Value Account of a Buy & Hold Synthetic GIC 
may be as low as 0 percent; and
    (3) Copies of the proposed exemption and grant notice with respect 
to the exemptive relief provided herein.
    (d) Following the receipt of such disclosure, the Plan fiduciary 
approves, in writing, the execution of the Buy & Hold Synthetic GIC on 
behalf of the Plan.
    (e) Upon entering into a Buy & Hold Synthetic GIC with a Plan 
fiduciary of a Plan that provides for participant investment selection 
(the Section 404(c) Plan), Deutsche Bank informs the Plan fiduciary 
that such fiduciary should provide each Plan participant with--
    (1) A summary of the primary provisions of the Contract, including 
the applicable fees; and
    (2) Information explaining that if adverse market conditions occur, 
the Book Value Account's Crediting Rate may be as low as 0 percent.
    (f) Subsequent to a Plan's investment in a Buy & Hold Synthetic 
GIC, the Plan fiduciary and, if applicable, the Plan participant, upon 
such participant's request, receive a monthly report consisting of a 
statement of the Book Value Account, which specifies, among other 
things, the Book Value Account balance for the prior month, withdrawals 
from the Contract, any reduction in the balance of the Book Value 
Account on account of a security in the fixed portfolio (the Fixed 
Portfolio) becoming an impaired security, interest credited to the Book 
Value Account at the Crediting Rate, and the current month's ending 
balance for the Book Value Account. The report will also specify the 
Current Crediting Rate, the prior month's ending fair market value of 
the Fixed Portfolio, the proceeds of any securities liquidated, fees 
charged to the Plan, and the current month's ending fair market value 
of the Fixed Portfolio and rate of return.
    (g) As to each Plan, the combined total of all fees and charges 
imposed under a Buy & Hold Synthetic GIC is not in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (h) Each Buy & Hold Synthetic GIC specifically provides an 
objective method for determining the fair market value of the 
securities owned by the Plan pursuant to such GIC.
    (i) Each Buy & Hold Synthetic GIC has a predefined maturity date 
selected by the Plan fiduciary and agreed to by Deutsche Bank.
    (j) Neither Deutsche Bank nor its affiliates maintain custody of 
the assets underlying the Buy & Hold Synthetic GIC or commingle those 
assets with other funds under their management.
    (k) The formulas for computing the Crediting Rate for the Buy & 
Hold Synthetic GIC and a charge for terminating the Buy & Hold 
Synthetic GIC within three years of its effective date (the Early 
Termination Charge) are objectively determined. Further, the Early 
Termination Charge compensates

[[Page 4845]]

Deutsche Bank for its direct costs incurred in connection with the Buy 
& Hold Synthetic GIC.
    (l) Deutsche Bank maintains books and records of each Buy & Hold 
Synthetic GIC transaction for a period of six years in a manner that is 
accessible for audit and examination. Such books and records are 
subject to annual audit by independent, certified public accountants.

Summary of Facts and Representations

    1. The parties involved in the proposed transactions are described 
as follows:
    (a) Deutsche Bank AG is a German banking institution founded in 
1870 and based in Frankfurt, Germany. It is the largest triple-A rated 
bank in the world. In terms of assets and deposits, Deutsche Bank AG is 
the largest bank in the European union and among the ten largest banks 
in the world. Through its affiliates, Deutsche Bank AG is engaged, on a 
global basis, in investment banking, market making, distributing debt 
and equity securities of both governmental and private issuers. In 
addition, Deutsche Bank AG has capabilities worldwide in the areas of 
corporate finance, financial advisory services, foreign exchange 
transactions, over-the-counter derivative transactions and asset 
securitization.
    (b) Deutsche Bank North America Holding Corp. (DBNA), a direct 
subsidiary of Deutsche Bank AG, was created on September 4, 1991 to 
coordinate the North American activities of the DBNA and Deutsche Bank 
AG branches and subsidiaries that offer commercial banking, investment 
banking, asset management and capital markets products and services to 
individuals and corporations in the United States, Canada and Mexico.
    (c) Deutsche Bank New York (DBNY), the New York branch of Deutsche 
Bank, is operated pursuant to a license issued by the Superintendent of 
Banks of the State of New York on July 14, 1978. DBNY derives its 
powers from the New York Banking Law and is subject to the supervision 
of the New York State Banking Department, the Board of Governors of the 
Federal Reserve System and the United States courts. DBNY serves 
private individuals, enterprises, public corporations and institutional 
investors and banks in the United States, as well as Deutsche Bank AG's 
German clients.
    (d) Deutsche Morgan Grenfell Financial Products (DMGFP), an 
indirect subsidiary of DBNA and an unincorporated business division of 
various Deutsche Bank AG branches and subsidiaries, markets investment 
banking products and services worldwide. Specifically, DMGFP's main 
activities include the marketing, arranging and hedging, in the name of 
various branches of Deutsche Bank AG, of certain of Deutsche Bank AG's 
fixed income activities which include Buy & Hold Synthetic GICs.
    As of June 30, 1999, the aforementioned Deutsche Bank entities had 
total assets, on a consolidated basis, of $877.317 billion.
    (e) The Plans involved herein will consist primarily of defined 
contribution plans that are subject to the Act as well as Plans that 
are subject to sections 401(a) and 403(b) of the Code. As also noted 
herein, a Plan may invest in a Buy & Hold Synthetic GIC through 
commingled investment entities.
    2. The transactions for which prospective exemptive relief is 
requested would be entered into by Deutsche Bank AG, typically through 
DBNY. The investment product would be marketed and arranged primarily 
through DMGFP, a subsidiary established pursuant to section 4(c)(8) of 
the Bank Holding Company Act of 1955, as amended, and supervised by the 
Board of Governors of the Federal Reserve System. The Buy & Hold 
Synthetic GIC will only be marketed to Plans by entities that are 
Deutsche Bank affiliates located in the United States.
    Accordingly, Deutsche Bank is requesting an exemption from the 
Department in order to sell its Buy & Hold Synthetic GIC product to 
Plans and to extend credit to such Plans for the purpose of funding 
benefit withdrawals from the Contract. The Buy & Hold Synthetic GIC is 
a variation of traditional guaranteed investment contracts (the GICs). 
The Buy & Hold Synthetic GIC will be offered to an indeterminate number 
of Plan investors and to commingled entities. Deutsche Bank will 
negotiate the terms of the Buy & Hold Synthetic GIC with the 
appropriate Plan fiduciary which is expected to be the Plan's named 
fiduciary.\1\
---------------------------------------------------------------------------

    \1\ The Department notes that section 404(a)(1) of the Act 
requires, among other things, that a fiduciary of a plan must act 
prudently, solely in the interest of the plan's participants and 
beneficiaries, and for the exclusive purpose of providing benefits 
to participants and beneficiaries when making investment decisions 
on behalf of a plan. The Department notes that in order to act 
prudently in making investment decisions, plan fiduciaries must 
consider, among other factors, the availability, risks and potential 
return of alternative investments for the plan.
---------------------------------------------------------------------------

    3. Deutsche Bank represents that the Buy & Hold Synthetic GIC will 
provide purchasers with the advantages of a traditional GIC along with 
enhanced security that is not offered under a traditional GIC. Under 
Deutsche Bank's Buy & Hold Synthetic GIC, each Plan will retain legal 
title to all of the assets underlying the arrangement and have the 
benefit of a contract pursuant to which all participant-initiated 
benefit payments and transfers will be paid based on the balance of the 
Book Value Account (see Representation 7.) For this purpose, 
participant-initiated benefit payments and transfers mean withdrawals 
necessary to accommodate any loans from the Plan to participants, in-
service withdrawals requested by participants, distributions arising 
from termination of employment in the ordinary course and transfers, at 
the direction of participants, from the investment fund in which the 
Buy & Hold Synthetic GIC is held to another investment fund available 
under the Plan other than a ``competing'' investment fund (see 
Representation 11).
    4. Like traditional GICs, Deutsche Bank's duties and obligations 
with respect to the Buy & Hold Synthetic GIC will be governed by the 
terms of a Contract which it will execute with the independent 
fiduciary of the affected Plan. The Contract, which will have no 
required minimum principal amount, will be issued pursuant to New York 
Banking Law and will be subject to the supervision of the New York 
State Banking Department and the Board of Governors of the Federal 
Reserve System. The terms and conditions of each Contract will be 
negotiated by the Plan fiduciary and Deutsche Bank. For example, the 
maturity date for the Buy & Hold Synthetic GIC will be agreed to by the 
Plan fiduciary and Deutsche Bank before the Contract is executed. 
Effectively, the Plan fiduciary will determine the maturity date of a 
Buy & Hold Synthetic GIC. However, in no event will the Buy & Hold 
Synthetic GIC have a stated maturity date exceeding seven years. Once 
the Contract is executed, Deutsche Bank will have no discretion over 
any of the terms of the Contract, which may be amended or modified only 
upon the mutual consent of the Plan fiduciary and Deutsche Bank.
    5. Deutsche Bank represents that it will only market the Buy & Hold 
Synthetic GIC to Plans (or to collective investment funds established 
for the investment of assets of more than one Plan) that have at least 
$50 million in assets. In the case of two or more Plans which are 
maintained by the same employer, controlled group of corporations or 
employee organization (i.e., the Related Plans), whose assets are 
commingled for investment purposes in a single master trust or any 
other entity

[[Page 4846]]

the assets of which are ``plan assets'' under the Plan Asset 
Regulation, which entity has purchased a Buy & Hold Synthetic GIC, the 
foregoing $50 million requirement will be deemed satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million. However, if the fiduciary responsible for making the 
investment decision on behalf of such master trust or other entity is 
not the employer or an affiliate of the employer, such fiduciary must 
have total assets under its management and control, exclusive of the 
$50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In the case of two or more Plans which are not maintained by the 
same employer, controlled group of corporations or employee 
organization (i.e., 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 has purchased a Buy & Hold Synthetic GIC, the 
foregoing $50 million requirement will be deemed satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (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 will be required 
to have (a) full investment responsibility with respect to Plan assets 
invested therein; and (b) 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.
    6. Prior to the execution of a Buy & Hold Synthetic GIC, the 
independent Plan fiduciary will receive a full and detailed written 
disclosure of all material features concerning the Buy & Hold Synthetic 
GIC, including (a) the Contract underlying the Buy & Hold Synthetic 
GIC, which has been executed by Deutsche Bank and the Plan fiduciary, 
which stipulates the relevant provisions of such instrument, the 
applicable fees and the rights and obligations of the parties; (b) 
information, explaining in a manner calculated to be understood by the 
Plan fiduciary, that if adverse market conditions occur, the interest 
rate that is credited (i.e., the Crediting Rate) to the Book Value 
Account of a Buy & Hold Synthetic GIC may be as low as 0 percent; and 
(c) copies of the proposed exemption and grant notice with respect to 
the exemptive relief provided herein. Following the receipt of such 
disclosure, the Plan fiduciary will approve, in writing, the execution 
of the Buy & Hold Synthetic GIC on behalf of the Plan.
    Upon entering into a Buy & Hold Synthetic GIC with a Plan fiduciary 
of a Section 404(c) Plan, Deutsche Bank will inform the Plan fiduciary 
that such fiduciary should provide each Plan participant with (a) a 
summary of the primary provisions of the Contract; and (b) information 
explaining that, if adverse market conditions occur, the Book Value 
Account's Crediting Rate may be as low as 0 percent.
    Subsequent to a Plan's investment in a Buy & Hold Synthetic GIC, 
the Plan fiduciary and, if applicable, the Plan participant, upon such 
participant's request, will receive a monthly report consisting of a 
statement of the Book Value Account, which specifies, among other 
things, the Book Value Account balance for the prior month, withdrawals 
from the Contract, any reduction in the balance of the Book Value 
Account on account of a security in the Fixed Portfolio becoming an 
impaired security, interest credited to the Book Value Account at the 
Crediting Rate, and the current month's ending balance for the Book 
Value Account. The report will also specify the Current Crediting Rate, 
the prior month's ending fair market value of the Fixed Portfolio, the 
proceeds of any securities liquidated, fees charged to the Plan, and 
the current month's ending fair market value of the Fixed Portfolio and 
rate of return.
    7. Every Buy & Hold Synthetic GIC will consist of two components. 
One component will be the underlying securities or portfolio of assets 
(i.e., the Fixed Portfolio), title to which will remain with the Plan's 
trustee. The Fixed Portfolio will be comprised primarily of high grade, 
fixed income securities, which will be selected and managed by the 
Plan's trustee or another Plan fiduciary which is unaffiliated with 
Deutsche Bank. The Fixed Portfolio may consist of a single security or 
a fixed portfolio of securities that will be established at the 
inception of the Contract and is intended to be held until maturity. 
The value of the securities will be determined by objective standards 
(see Representation 16 below).
    Although the Fixed Portfolio will not come under Deutsche Bank's 
administration or control, it affects the second component of each 
Contract, the Book Value Account, an accounting record established by 
Deutsche Bank to record the Plan's interest under the Buy & Hold 
Synthetic GIC. This is the amount that will be available to satisfy 
participant-initiated benefit payments and transfers.
    At the inception of the Contract, the Book Value Account will be 
equal to the value of the Fixed Portfolio. Thereafter, the Book Value 
Account will be credited with a rate of interest (i.e., the Crediting 
Rate) that will be reset periodically (monthly, quarterly, semi-
annually or annually) in accordance with the following formula which 
will be set forth in the Contract:
[GRAPHIC] [TIFF OMITTED] TN01FE00.010

Where BV=The balance of the Book Value Account (as determined under the 
Contract provisions) on the determination date;
net cash flow<INF>k</INF>=(1) In the case where the Fixed Portfolio 
consists of one security, the expected cashflows from that security, or 
(2) in the case where the Fixed Portfolio consists of more than one 
security, the aggregate expected cashflows from the securities (in 
either case, excluding all fees and charges applicable under the Buy & 
Hold Synthetic GIC) at time k; \2\
---------------------------------------------------------------------------

    \2\ For purposes of the formula, the expected cashflows from a 
security in the Fixed Portfolio and the total number of expected 
cashflows from the security will be determined under a three-part 
method in the following order of preference: (a) from widely-
available published sources independent of Deutsche Bank and its 
affiliates (such as Bloomberg); (b) if such information is not 
provided by widely-available, independent, published sources, the 
Plan fiduciary will cause the lead underwriter of the security (if 
the underwriter is not an affiliate of Deutsche Bank) to determine 
and provide such information to Deutsche Bank; or (c) if such 
information is not available from the lead underwriter or if the 
lead underwriter is an affiliate of Deutsche Bank, the Plan 
fiduciary will cause the issuer of the security to provide such 
information to Deutsche Bank. Deutsche Bank believes that the vast 
majority of the securities that will be included in the Fixed 
Portfolio will be publicly-traded securities for which cashflow 
information may be obtained from widely-available, independent, 
published sources. However, where the Plan fiduciary has 
specifically requested, Deutsche Bank will enter into a Buy & Hold 
Synthetic GIC with respect to one or more securities that are not 
publicly-traded. Then, methods (b) or (c) above will be applied to 
determine cashflow information.
---------------------------------------------------------------------------

IRR=The internal rate of return for the Fixed Portfolio;
n=The determination date (as determined under the Contract provisions); 
and

[[Page 4847]]

N=The time of final cashflow from the Fixed Portfolio.

The foregoing formula, which will be objectively determined by a Plan 
fiduciary that is independent of Deutsche Bank (see Representation 9), 
is intended to produce a Crediting Rate that will equal the projected 
``internal rate of return'' of each security comprising the Fixed 
Portfolio, with a floor of 0 percent. In addition, as described in 
Representations 4 and 12, the Contract will mature on a stated maturity 
date.
    8. The Buy & Hold Synthetic GIC will be supported by one or more 
specific fixed income securities that are bought in the primary or 
secondary market and are intended to be held until maturity. High 
quality mortgage-backed securities will be the primary type of security 
utilized, although other high quality securities may be used to support 
a Buy & Hold Synthetic GIC. All securities in the Fixed Portfolio will 
have predictable yield and cash flow characteristics. As principal, 
interest and other payments are made on the Fixed Portfolio, such 
amounts will be made available for investment outside of the Buy & Hold 
Synthetic GIC at the direction of a Plan fiduciary independent of 
Deutsche Bank. Generally, the Fixed Portfolio will be sold only upon 
termination of the Contract in order to provide amounts for benefit 
payments or for participant-directed transfers to other investment 
funds available under the Plan.
    9. Deutsche Bank believes that one of the attractive features of 
the Buy & Hold Synthetic GIC to a Plan is that Deutsche Bank will 
assume certain obligations with respect to the availability of funds 
for benefit withdrawals and participant-directed transfers between 
investment funds and the return realized from the Fixed Portfolio. 
Mechanically, this is accomplished through the establishment of the 
Book Value Account.
    The Book Value Account will reflect the value of the Fixed 
Portfolio at the inception of the Contract, as increased by the 
Crediting Rate determined pursuant to the formula set forth in the 
Contract and described above. The formula is intended to produce a 
Crediting Rate that will be equal to the projected internal rate of 
return \3\ of the Fixed Portfolio, but the Crediting Rate is guaranteed 
never to be below 0 percent. The Crediting Rate will be reset 
periodically so that it will at all times reflect the projected 
internal rate of return of the Fixed Portfolio. Each component of this 
formula will be set forth in the Contract and explained to the Plan 
fiduciary who will decide whether to purchase the Buy & Hold Synthetic 
GIC on behalf of any Plan. At all times during the term of the 
Contract, the Crediting Rate will be determined pursuant to the 
formula.
---------------------------------------------------------------------------

    \3\ The term ``internal rate of return'' means the rate of 
return on the Fixed Portfolio determined without regard to any 
return from the reinvestment of interest, dividends and other 
proceeds on the Fixed Portfolio. Those amounts will be reinvested 
outside the Buy & Hold Synthetic GIC by a Plan fiduciary independent 
of Deutsche Bank.
---------------------------------------------------------------------------

    10. Under the Contract, all participant-initiated benefit payments 
and transfers will be paid based on the balance of the Book Value 
Account. The Book Value Account will be reduced each month dollar-for-
dollar for the amount of participant-initiated benefit payments and 
transfers made under the Plan and for the amount of principal payments, 
coupon interest and other payments received by the Plan from the Fixed 
Portfolio. Benefit payments or transfers resulting from an action of 
the Plan's sponsor may result in the Book Value Account being subject 
to an additional reduction due to the premature withdrawal of such 
assets depending on the relationship of the balance of the Book Value 
Account to the market value of the Fixed Portfolio at the time of the 
withdrawal.
    11. Deutsche Bank's agreement to bear the economic effects of 
participant-initiated benefit payments and transfers through the use of 
the Book Value Account will be subject to certain conditions that are 
intended to assure that the factors under which Deutsche Bank has 
agreed to assume these effects do not change without its consent. If 
those conditions are not satisfied, Deutsche Bank will not be obligated 
to ensure the availability of the funds from the Fixed Portfolio to 
satisfy those benefit payments and transfers based on the balance of 
the Book Value Account, but rather withdrawals will be effected at the 
market value of the Fixed Portfolio. First, the Plan may not permit 
participant-directed transfers directly (or with less than a 90 day 
``equity wash'') from the investment fund in which the Buy & Hold 
Synthetic GIC is held to another ``competing'' investment fund 
available under the Plan, i.e., to another investment fund that has an 
investment objective of providing a stable rate of return with limited 
risk of loss of principal. This condition is intended to assure that 
participants will not have an economic incentive to direct transfers 
from the Buy & Hold Synthetic GIC to obtain a temporary improvement in 
the return on their accounts without any material change in their risk 
profile.
    Second, the Plan may not be amended without Deutsche Bank's consent 
in order to change the provisions of the Plan pertaining to 
participant-initiated benefit payments and transfers or otherwise in a 
manner which may affect Deutsche Bank's obligations in this regard. For 
example, if a Plan provides that amounts necessary to fund loans from 
the Plan to participants were to be withdrawn pro rata from all 
investment funds (e.g., equity, balanced and fixed income), the Plan 
could not be amended to require that the funds for all such loans be 
withdrawn solely from the investment fund in which the Buy & Hold 
Synthetic GIC is held unless Deutsche Bank consents to the amendment.
    Third, if any withdrawal arises from an action of the Plan's 
sponsor that affects a significant number of employees (e.g., layoffs, 
plant closings, divestitures, mergers or consolidations, the complete 
or partial termination of the Plan and the implementation of an early 
retirement incentive program), the effect of such withdrawal on the 
Book Value Account will generally be comparable to that of a similar 
withdrawal under a traditional GIC, i.e., such withdrawal from the 
Contract will be effected at the market value of the Fixed Portfolio. A 
Plan fiduciary may negotiate with Deutsche Bank that the Contract shall 
provide that any such withdrawal will be effected at the market value 
of the Fixed Portfolio only after similar employer-initiated 
withdrawals over a specified period (e.g., the preceding 12 months or 
the term of the Contract) have exceeded a specified percentage of the 
Book Value Account.
    12. The Contract will mature on the stated maturity date of the 
security in the Fixed Portfolio or, if there is more than one security 
in the Fixed Portfolio, the latest stated maturity date of any of the 
securities. The stated maturity date of a security is the date of the 
expected maturity of the security at the time of the purchase. If the 
principal of the security (or the securities) in the Fixed Portfolio is 
actually repaid faster or slower than expected, the Contract will not 
mature on the stated maturity of the security (or the latest maturity 
date), but instead will mature on the date the last principal payment 
is actually received by the Plan. In no event will the Contract mature 
later than the actual maturity date of the security.
    Notwithstanding the foregoing, the Contract may also mature on a 
fixed date mutually agreed upon by the Plan fiduciary and Deutsche 
Bank.\4\
---------------------------------------------------------------------------

    \4\ As noted in Representation 4, no Buy & Sell Synthetic GIC 
described herein will have a stated maturity date exceeding seven 
years.

---------------------------------------------------------------------------

[[Page 4848]]

    If, on the maturity date, the balance of the Book Value Account 
exceeds the fair market value of the Fixed Portfolio, Deutsche Bank 
will pay the Plan the difference (see Representation 15). Because the 
Book Value Account's Crediting Rate will be equal to the underlying 
Fixed Portfolio's projected internal rate of return, any difference 
between the balance of the Book Value Account and the fair market value 
of the Fixed Portfolio on the maturity date of the Contract should be 
insignificant. Thus, any payment Deutsche Bank will have to make to 
support the Book Value Account should be negligible.
    13. A Plan fiduciary may also elect to terminate the Buy & Hold 
Synthetic GIC at any time on 30 days (or such shorter period as 
mutually agreed upon by the Plan fiduciary and Deutsche Bank) prior 
notice to Deutsche Bank. Deutsche Bank may also terminate the Buy & 
Hold Synthetic GIC on 30 days prior notice to the Plan fiduciary only 
under limited circumstances, e.g., (a) on account of regulatory 
restrictions, or (b) if the Plan has breached one of its obligations 
under the Contract or has taken actions that would constitute an event 
of default under the Contract. Specifically, the Contract may be 
terminated by Deutsche Bank if (a) any fee or charge payable to 
Deutsche Bank under the Contract has not been timely paid, (b) a 
representation upon which Deutsche Bank has relied upon in entering 
into the Contract was or becomes untrue, (c) if withdrawals are 
effected from the Contract other than as permitted, or (d) if there are 
material changes in the arrangement that may have a material adverse 
effect on Deutsche Bank's obligations under the Contract (including 
changes in the Plan or its administration).\5\
---------------------------------------------------------------------------

    \5\ According to the applicant, a change in custodial bank would 
not be considered a material change warranting a termination of the 
Contract by Deutsche Bank.
---------------------------------------------------------------------------

    Although the decision to terminate the Contract under these 
circumstances will be made by Deutsche Bank, such action can only be 
taken after the Plan has breached one of its obligations under the 
Contract or unilaterally has taken other actions that could materially 
modify, in an adverse manner, Deutsche Bank's obligations under the 
Contract. Thus, the Plan can preclude Deutsche Bank from terminating 
the arrangement merely by satisfying its contractual obligations and by 
not acting in a manner that materially alters the underwriting 
assumptions relied upon by Deutsche Bank in entering into the 
arrangement.
    14. If the Plan fiduciary voluntarily terminates the Contract or if 
Deutsche Bank terminates the Contract for one of the reasons specified 
in the Contract (such as the Plan's breach of a contractual 
obligation), the Plan fiduciary will have complete control over the 
Fixed Portfolio (i.e., the Portfolio may be invested without any 
contractual constraints) and will realize the fair market value of the 
Fixed Portfolio. Deutsche Bank will have no obligation with respect to 
the Book Value Account (see Representation 21). If the Contract is 
terminated by the Plan fiduciary voluntarily within three years after 
its effective date, an Early Termination Charge payable by the Plan may 
apply that will be determined under an objective formula set forth in 
the Contract, which is intended to enable Deutsche Bank to recoup its 
costs incurred (e.g., research and underwriting resources, internal and 
external legal and other professional charges, and operational and 
systems expenses) in connection with the Contract. The formula is set 
forth as follows:

[(F * BV)] * N,

Where
F = The expense charge payable to Deutsche Bank as agreed upon by 
Deutsche Bank and the Plan's independent fiduciary at the inception of 
the Contract, expressed as an annual percentage rate;
BV = The balance of the Book Value Account on the termination date; and
N = The number of days in the period from the termination date through 
the third anniversary date of the effective date of the Contract, 
divided by 365.

Under no circumstances will the Early Termination Charge be payable by 
the Plan if Deutsche Bank has breached any of its obligations under the 
Contract or has defaulted under the Contract.
    15. Under the Buy & Hold Synthetic GIC, Deutsche Bank will assume 
the obligation for the availability of funds to satisfy participant-
initiated benefit payments and transfers up to the amount of the 
balance of the Book Value Account as of any date. Deutsche Bank, the 
Plan, the Plan fiduciaries or other agents will not have any discretion 
over when a withdrawal may be made from the Contract. The Contract will 
not be accessed for withdrawals until other specified sources of funds 
(e.g., contributions to the Plan's investment fund under which the Buy 
& Hold Synthetic GIC is held, current investment income, maturing 
proceeds, cash equivalents, available cash attributable to the 
underlying Fixed Portfolio and other investment contracts which are to 
be accessed for withdrawals before the Contract under a ``last-in-
first-out'' hierarchy) have been depleted. If a withdrawal is made from 
the Contract, such withdrawal will be made from cash realized on the 
sale of a portion of the Fixed Portfolio or, if an election is made by 
the Plan fiduciary and consented to by Deutsche Bank, such withdrawal 
amount will be paid to the Plan in cash by Deutsche Bank and the Plan 
will be obligated to repay such amount to Deutsche Bank as principal, 
interest and other amounts paid to the Plan on the Fixed Portfolio 
become available.\6\
---------------------------------------------------------------------------

    \6\ The election available to Deutsche Bank to pay the amount of 
the withdrawal instead of liquidating a portion of the Fixed 
Portfolio to satisfy the withdrawal is intended to create liquidity 
for the Plan in circumstances where the security that would 
otherwise be liquidated would be difficult to sell (e.g., where the 
principal amount of the security is small) rather than a situation 
where the value of the Fixed Portfolio falls below a minimum level. 
Deutsche Bank represents that the election would benefit the Plan by 
saving costs that would otherwise be incurred if the Plan was forced 
to sell the security on the open market. Deutsche Bank further 
represents that its election to pay the amount of a withdrawal will 
not affect its obligations to the Plan under the Buy & Hold 
Synthetic GIC.
---------------------------------------------------------------------------

    16. If a withdrawal is to be satisfied by the sale of assets in the 
Fixed Portfolio, the Plan fiduciary will do so in a manner consistent 
with its fiduciary responsibilities under the Act. The Contract 
provides that the fair market value of the securities sold will be 
determined based upon the actual proceeds received by the Plan 
fiduciary in an arm's length transaction. Under the Contract, the fair 
market value of any security in the Fixed Portfolio will be determined 
by averaging three competitive bids for such security received from 
parties independent of, and mutually agreed upon by, Deutsche Bank and 
the Plan.
    17. The portion of the Fixed Portfolio sold will also depend upon 
the type of Contract negotiated by the Plan fiduciary. In this regard, 
Deutsche Bank will offer Plans two types of Contracts (or a combination 
thereof). In the first type of Contract, as withdrawals occur during 
the term of such Contract, only the portion of the Fixed Portfolio 
necessary to satisfy the withdrawal having a fair market value equal to 
the amount of the withdrawal will be sold. Then, the Book Value Account 
will be correspondingly reduced by the amount of such payment. However, 
if the amount of the withdrawal is greater than the fair market value 
of the entire Fixed Portfolio (which could happen if the fair market 
value of the Fixed

[[Page 4849]]

Portfolio is less than the balance of the Book Value Account), Deutsche 
Bank will be required to sell the entire Fixed Portfolio to satisfy the 
withdrawal. In addition, Deutsche Bank will be required to pay the Plan 
the difference between the amount of the withdrawal and the fair market 
value of the Fixed Portfolio in cash. Conversely, if the value of the 
Fixed Portfolio exceeds the amount of the withdrawal, the Plan will not 
be required to pay the difference to Deutsche Bank.
    When a withdrawal occurs under the second type of Contract, the 
portion of the Fixed Portfolio sold will be that portion having a fair 
market value equal to the amount of the withdrawal multiplied by a 
fraction, the numerator of which is the fair market value of the entire 
Fixed Portfolio and the denominator of which is the balance of the Book 
Value Account, and, if the sale proceeds are less than the amount of 
the withdrawal, Deutsche Bank will pay the Plan the amount of the 
deficiency in cash or, if the sale proceeds are greater than the amount 
of the withdrawal, the Plan will pay Deutsche Bank the amount of the 
excess in cash.\7\
---------------------------------------------------------------------------

    \7\ The underlying principle of the second type of contract is 
that a withdrawal resulting from a participant-initiated benefit 
payment or transfer does not affect the rate of interest credited to 
the Book Value Account. The credited rate of interest is maintained 
principally by keeping the ratio of the balance of the Book Value 
Account to the fair market value of the Fixed Portolio the same 
before and after the withdrawal. This is illustrated in the 
following example where--
    <bullet> Before the withdrawal, the balance of the Book Value 
Account is $100 and the market value of the Fixed Portfolio is $90. 
Assume a withdrawal of $10 occurs.
    <bullet> After the withdrawal, the balance of the Book Value 
Account is reduced by $10 (amount of the withdrawal) to $90. The 
market value of the Fixed Portfolio is reduced by the product of $10 
(amount of the withdrawal) and $90 (the market value of the Fixed 
Portfolio before the withdrawal), over $100 (balance of the Book 
Value Account before the withdrawal), an amount equal to $81. (In 
other words, $10 x $90/$100 = $9. $90-$9 = $81.)
---------------------------------------------------------------------------

    18. To illustrate the method for making a withdrawal under the 
second type of Contract, assume that a withdrawal of $10,000 is needed 
and to effect the withdrawal the Plan sells a portion of the Fixed 
Portfolio having a book value of $10,000, but a then current market 
value of $9,500. The Book Value Account will be reduced by $10,000, the 
value of the Fixed Portfolio will be reduced by $9,500 and Deutsche 
Bank will make a cash payment to the Plan of $500 to make up the 
difference. If, however, the market value of the portion of the Fixed 
Portfolio sold were $10,500, the Book Value Account would still be 
reduced by $10,000, the Fixed Portfolio would be reduced by the full 
$10,500 and the Plan would pay Deutsche Bank an additional fee of $500.
    19. Under the second type of Contract, if the proceeds realized on 
the sale of a portion of the Fixed Portfolio are greater than the 
amount of the withdrawal, the Plan fiduciary may exercise its right to 
terminate the Contract and take full control over the Fixed Portfolio 
and, thereby, avoid paying an additional fee to Deutsche Bank equal to 
the excess. The purpose of this additional fee is to protect Deutsche 
Bank from the additional risks that were not intended to be assumed by 
Deutsche Bank in the context of the Buy & Hold Synthetic GIC. When a 
Plan fiduciary enters into a Buy & Hold Synthetic GIC, both the 
fiduciary and Deutsche Bank intend that the Fixed Portfolio will be 
held to maturity. Participant-initiated benefit payments and transfers 
that would require selling a portion of the Fixed Portfolio are 
possible, but are not contemplated. If such a sale were required and, 
at such time, the overall market value of the Fixed Portfolio exceeded 
the balance of the Book Value Account, Deutsche Bank would expect that 
a Plan fiduciary might decide to exercise its option to terminate the 
arrangement and ``cash-in'' the benefit of the appreciation in the 
market value of the Fixed Portfolio.\8\ This is because, as the Buy & 
Hold Synthetic GIC is designed, the value of the Book Value Account and 
the Fixed Portfolio are expected to be equal at maturity. If, at any 
given point in time, the market value of the Fixed Portfolio exceeds 
the balance of the Book Value Account, it would generally reflect an 
unanticipated increase in the market value of the underlying Fixed 
Portfolio, the benefit of which could likely be lost if the Fixed 
Portfolio were held to maturity. If, however, the market value of the 
Fixed Portfolio does not exceed the balance of the Book Value Account, 
but an asset in the Fixed Portfolio with a market value above its book 
value were sold to effect a withdrawal following the selection of such 
security by the Plan fiduciary, Deutsche Bank would be placed in the 
situation of having an obligation with respect to the performance of 
assets that, as a whole, are underperforming while an asset that 
exceeded projected performance was disposed of at a profit. To allow 
the Plan to reap the benefit of the profit on this asset would fail to 
reflect the ``book loss'' on the entire Fixed Portfolio, a loss which 
Deutsche Bank is contractually obligated to bear. Thus, the profit is 
payable to Deutsche Bank as an additional fee and reflects the fact 
that this ``profit,'' if realized at maturity, would otherwise have 
offset or reduced the amount Deutsche Bank would ultimately have been 
required to pay in respect of the Book Value Account of the remaining 
underperforming assets.
---------------------------------------------------------------------------

    \8\ Under such circumstances, the Plan would not incur any costs 
unless the termination occurs prior to the third anniversary of the 
effective date of the contract (see Representation 14).
---------------------------------------------------------------------------

    Alternatively, if the Plan fiduciary does not wish to pay Deutsche 
Bank this additional fee, the fiduciary may elect to enter into the 
first type of Contract described above. The two types of Contracts 
offer different risk levels from which the fiduciary may choose the one 
appropriate for the Plan.
    20. Under either type of Contract, a fiduciary of the Plan 
independent of Deutsche Bank will, in its sole discretion, determine 
which of the securities in the Fixed Portfolio will be sold. If any 
portion of the Fixed Portfolio has to be sold to effect any withdrawal, 
the Plan fiduciary will do so in a manner consistent with its fiduciary 
responsibilities under the Act. The Contract provides that the fair 
market value of the securities sold will be determined based upon the 
actual proceeds received by the Plan fiduciary in an arm's length 
transaction.
    21. If at the time the Contract matures, the balance of the Book 
Value Account exceeds the fair market value of the Fixed Portfolio, 
Deutsche Bank will make a payment to the Plan equal to such excess (the 
Book Value Payment). If the fair market value of the Fixed Portfolio 
equals or exceeds the balance of the Book Value Account, no Book Value 
Payment will be made and such excess belongs exclusively to the Plan.
    During the term of the Contract, the Plan fiduciary will reinvest 
the proceeds of the Fixed Portfolio as the fiduciary sees fit in other 
investments. Any principal, interest and other proceeds paid to the 
Plan with respect to the Fixed Portfolio will not become subject to the 
Contract but instead will be reinvested by the Plan fiduciary. 
Accordingly, the value of the Fixed Portfolio will decline over time as 
principal and interest payments are made on the underlying security or 
securities. The Book Value Account will be correspondingly reduced as 
amounts are distributed from the arrangement. By reason of these 
distributions, it is expected that the Book Value Account will decrease 
significantly from its initial value by the time the Contract matures. 
Given this reduction in the Book Value Account and the fact that the 
Book Value Account's Crediting Rate is calculated based on the expected 
rate of return on the fixed Portfolio, any

[[Page 4850]]

Book Value Payment made should be de minimus. \9\
---------------------------------------------------------------------------

    \9\ It is expected that, as of the maturity date of the 
Contract, there will be only a de minimus difference between the 
value of the Fixed Portfolio and the balance of the Book Value 
Account. However, during the term of the Contract, parity between 
Book Value and fair market value may not exist. For example, if a 
participant-initiated benefit payment or transfer occurs and such 
payment or transfer is made from cash realized on the sale of a 
portion of the Fixed Portfolio, the value of the Fixed Portfolio 
remaining after such sale and the Book Value Account after the 
reduction for the amount of such benefit payment may be quite 
different depending on the relationship of the Book Value of the 
portion of the Fixed Portfolio sold and the market value.
---------------------------------------------------------------------------

    22. Deutsche Bank believes that the Buy & Hold Synthetic GIC is 
superior to traditional GICs in that each Buy & Hold Synthetic GIC 
serves the dual functions of (a) affording a Plan substantially greater 
protection against the risks of loss of its principal investment and 
(b) providing the Plan with an opportunity for a greater rate of return 
than a traditional GIC. Under the Buy & Hold Synthetic GIC, Deutsche 
Bank will make payments to the Plan such that all participant-initiated 
benefit payments and transfers will be paid based on the balance of the 
Book Value Account. This means that, despite fluctuations in the market 
value of the Fixed Portfolio, each participant, in making participant-
initiated benefit payments and transfers, will be protected against any 
loss of principal by Deutsche Bank's contractual commitment. In the 
ordinary course, the effect of this commitment will be to enable the 
Plan to account for the value of the assets of the Plan held pursuant 
to the Contract without regard to any interim fluctuation in the market 
value of such assets. However, this commitment will have a real 
economic effect for Plan participants in the event that withdrawals are 
made from the Buy & Hold Synthetic GIC.
    23. To recap, the Fixed Portfolio to be held under the Contract 
will be determined at the inception of the Contract. Generally, the 
Fixed Portfolio will be disposed of only upon termination of the 
Contract (if determined by the Plan fiduciary) or upon the occurrence 
of certain events specified in the Contract (see Representation 15 
above). A security will be removed from the Fixed Portfolio if it 
becomes an impaired security (i.e., generally a defaulted or 
accelerated security or a security that no longer satisfies specified 
credit-related criteria) as objectively determined under the provisions 
of the Contract.\10\
---------------------------------------------------------------------------

    \10\ In this regard, Deutsche Bank represents that it uses a 
standard, commercial definition of the term ``impaired security'' 
which is also used by many other issuers of synthetic GICs. Although 
this definition will appear in the template agreement provided by 
Deutsche Bank to a prospective customer for review, the specific 
definition of ``impaired security,'' will be subject to negotiation 
by Deutsche Bank and the Plan fiduciary before the Contract is 
executed.
    The standard definition of an ``impaired security'' is as 
follows: An ``impaired security'' means (a) a security with respect 
to which an event has occurred or exists which, under one or more 
agreements or instruments relating to such security, has resulted in 
the principal of, and/or interest on, such security becoming due and 
payable before any such amount would otherwise have been due or 
payable other than as a result of a call or other prepayment of a 
security made in accordance with its terms that does not constitute 
a default under such security; (b) a security with respect to which 
the issuer has failed to make one or more payments of principal or 
interest when due (giving effect to any applicable grace period); or 
(c) a security (1) with respect to which the specified rate of 
interest is not paid or distributed when due, (2) with respect to 
which interest is accruing on a principal balance that is less than 
the difference between the original par or face amount of such 
security and the amount of principal previously paid on such 
security, or (3) where the rate of interest thereon has been reset 
other than pursuant to the original terms thereof.
---------------------------------------------------------------------------

    In addition, the Plan will hold legal title to the Fixed Portfolio. 
Subject to the Plan's obligation to pay Deutsche Bank's fees, any 
appreciation in the market value of the Fixed Portfolio, as well as 
current interest and principal payments, will belong to the Plan.
    Thus, the only risk to the Fixed Portfolio posed by the financial 
condition of Deutsche Bank will relate to the amount representing the 
excess, if any, of the balance of the Book Value Account over the fair 
market value of the Fixed Portfolio. Therefore, Deutsche Bank 
represents that the Buy & Hold Synthetic GIC will provide greater 
security than a traditional GIC wherein a Plan places a substantial 
amount of its assets at risk based on the creditworthiness of the 
issuer of the GIC.
    24. Deutsche Bank will maintain, for a period of six years 
following the execution of each Buy & Hold Synthetic GIC transaction 
full and complete records and books reflecting the various accounts 
established in accordance with the Buy & Hold Synthetic GIC. Such 
records will be kept in a manner that is accessible for audit and 
examination. Upon written request by a Plan representative, Deutsche 
Bank will make its records pertaining to the Buy & Hold Synthetic GIC 
available during normal business hours for audit by independent, 
certified public accountants hired by the Plan fiduciary.
    25. Deutsche Bank and the Plan fiduciary will agree to an expense 
charge (determined at the inception of the Contract) payable to 
Deutsche Bank with respect to the Buy & Hold Synthetic GIC that will be 
stated as an annual fee equal to a fixed percentage of the balance of 
the Book Value Account and will accrue on a daily compound basis. This 
charge will cover four elements: (a) A benefit risk charge, (b) a 
maturity risk charge, (c) an expense charge, and (d) a profit charge. 
The benefit risk charge is a fee for assuming the risk of loss 
associated with participant-initiated benefit payments and transfers. 
It will be developed on a Plan-specific basis after a review of the 
Plan's benefit payment cashflow history and the structure of the Plan 
itself (i.e., the frequency at which withdrawals and investment 
transfers are permitted, and the structure of alternate investment 
opportunities). The maturity risk charge will be based on a review of 
the volatility of, and the guidelines for investment of, the Fixed 
Portfolio. The expense and profit charges will be assessed based on the 
expected expenses related to the arrangement and the payment to 
Deutsche Bank of a reasonable profit. Such negotiated charge would 
remain in effect throughout the term of the Contract.
    Based on its review of competitive practices, Deutsche Bank 
represents that the aggregate charges with respect to the Buy & Hold 
Synthetic GICs offered by Deutsche Bank are, and are expected to 
continue to be, comparable to the charges made by other Buy & Hold 
Synthetic GIC providers.
    26. In summary, it is represented that the subject transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The decision to enter into a Buy & Hold Synthetic GIC will be 
made on behalf of a Plan, in writing, by a fiduciary of the Plan which 
is independent of Deutsche Bank.
    (b) Each Plan or commingled entity investing in a Buy & Hold 
Synthetic GIC will have at least $50 million in assets.
    (c) Prior to and subsequent to the execution of a Buy & Hold 
Synthetic GIC, the Plan fiduciary, and if applicable, Plan 
participants, will receive full and detailed written disclosures of all 
material features of the Contract, including a description of all 
applicable fees and charges as well as ongoing disclosures with respect 
to such investment.
    (d) As to each Plan, the combined total of all fees and charges 
under the Buy & Hold Synthetic GIC will not be in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (e) Each Buy & Hold Synthetic GIC will specifically provide an 
objective method for determining the fair market value of the 
securities owned by the Plan pursuant to such GIC.

[[Page 4851]]

    (f) Deutsche Bank will maintain, for a period of six years from the 
date of each Buy & Hold Synthetic GIC transaction, in a manner for 
audit and examination, books and records of all transactions which will 
be subject to annual audit by certified, public accountants selected by 
and responsible solely to the Plan.

Notice to Interested Persons

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

FOR FURTHER INFORMATION CONTACT:  Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Cullen Incorporated Profit Sharing Plan and Trust (the Profit 
Sharing Plan), Cullen Incorporated Employees Defined Contribution 
Pension Plan and Trust (the Money Purchase Plan) (Collectively the 
Plans) Located in Fredericksburg, Virginia

[Exemption Application No. D-10823 and D-10824]

Proposed Exemption

    The Department of Labor (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).\11\ 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(a) and (b) of the Code, by reason 
of section 4975(c)(1)(A) through (E) of the Code, shall not apply to 
the past sale (the Sale) by the Plan of property located in 
Fredericksburg, Virginia (the Property) to Robert C. O'Neill (Mr. 
O'Neill), the trustee of the Plans, President and sole shareholder of 
the Plan Sponsor, and a party in interest with respect to the Plans, 
provided that the following conditions are satisfied: (a) the Sale was 
a one time transaction for a lump sum cash payment; (b) the purchase 
price was the fair market value of the Property as of the date of the 
Sale; (c) the Property has been appraised by a qualified, independent 
real estate appraiser; and (d) the Plans paid no commissions or other 
expenses relating to the Sale.
---------------------------------------------------------------------------

    \11\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally 
transferred the authority of the Secretary of the Treasury to issue 
exemptions under section 4975(c)(2) of the Code to the Secretary of 
Labor.
    In the discussion of the exemption, references to section 406 
and 408 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    EFFECTIVE DATE OF EXEMPTION: The effective date of this exemption 
is November 6, 1998.

Summary of Facts and Representations

    1. The applicant is Robert C. O'Neill (Mr. O'Neill). Mr. O'Neill is 
the trustee for the Plans. He is also the President and sole 
shareholder of Cullen Incorporated (Cullen Inc.), the Plans' sponsor. 
As of October 8, 1999, there were 14 participants in each Plan.
    2. The Applicant understands that at the time of consummation of 
the Sale, the approximate fair market value of the total assets of the 
Profit Sharing Plan and Money Purchase Plan were $348,139 and $557,948, 
respectively and that approximately 11% and 12%, respectively, of the 
total assets for the 1997 Plan year were involved in the subject 
transaction.
    The applicant represents that at the time of the Sale, Mr. O'Neill 
was the Plans' trustee. Cullen Inc., was the Plans' sponsor and a party 
in interest with respect to the Plans. Cullen Inc. is a property 
management company which manages various properties owned by the Cullen 
Land Corporation (Cullen Land).
    3. The applicant states that the Property was owned by the Plans at 
the time of the Sale. The Property consisted of a building (the Kayo 
Building), a 850 square foot cinder block structure on 8,809 square 
feet located at 530 Princess Anne Street, Fredericksburg, Virginia 
22401.
    The applicant represents that on March 21, 1989 the Cullen Trust 
Limited Partnership, a Virginia Limited Partnership, was formed to 
purchase the Property from an unrelated third party. Cullen Land was 
the General Partner and the Plans were Limited Partners. The applicant 
further represents that the Property was purchased for $103,384 by the 
Plans on September 1, 1991. The Profit Sharing Plan was a 39.5% limited 
partner with a capital contribution of $38,933 and the Money Purchase 
Plan, a 59.5% limited partner with a capital contribution of $63,391. 
Cullen Land owned a 1% interest with a capital contribution of $1060.
    The applicant represents that the Property was purchased to 
diversify the portfolios of the Plans. The site of the Property is one 
block from the terminus of the Virginia Railway Express, the commuter 
rail service to the Washington, D.C. area. The applicant states that it 
was anticipated that the commuter rail would have a major impact on 
property values.
    In addition, the applicant represents that the Property was leased 
to various unrelated third party commercial tenants from 1989 to 1998. 
Cullen Inc. leased and managed the Property and received no commissions 
or fees.
    4. The Applicant represents that the motivation for the Plans' 1998 
Sale of the Property to Mr. O'Neill was solely to benefit Plans' 
interests. The Plans owned the Property for about ten years. The 
applicant states that by 1997 and 1998 the annual rental income \12\ 
from leasing the Kayo building to third parties did not produce the 
annual return commensurate with other alternative investments and the 
forecast for appreciation in the value of the Property was not adequate 
to justify its continued retention.\13\
---------------------------------------------------------------------------

    \12\ In this regard, the applicant represents that from 1989 to 
1998 the gross rent was $48,877 and the total expenses incurred to 
be $30,281. Accordingly, the Plans' total return on this investment 
amounted to approximately $18,596.
    \13\ The Department expresses no opinion as to whether the 
acquisition and holding of the Property by the Plans met the 
requirements of section 404 of the Act.
---------------------------------------------------------------------------

    In addition, the applicant represents that the Property would have 
required improvements at considerable cost to the Plans to increase 
returns. Accordingly, the applicant represents that it would not have 
been prudent to have the Plans take on debt, invest additional capital 
in the Property, and subsequently find a tenant.
    5. The applicant represents that the services of Lawrence J. Gorman 
(Mr. Gorman) of Retirement Plan Services, Inc., located in 
Fredericksburg, Virginia, were retained to provide administrative 
services to the Plans. In addition, the applicant states that Mr. 
Gorman was a pension trust officer with the National Bank of 
Fredericksburg, in Fredericksburg, Virginia. Thereafter, the applicant 
represents, Mr. Gorman established his own pension administration 
business in the Fredericksburg area and the Plans transferred their 
business to Mr. Gorman's company.
    The applicant represents that Mr. Gorman prepared the Plans' tax 
returns and Department of Labor reports since

[[Page 4852]]

1989. The applicant further represents that he relied on the advice and 
counsel of Mr. Gorman prior to engaging in the Sale of the Property. 
The applicant states that Mr. Gorman was kept abreast of all 
developments relating to the transaction. The applicant further states 
that Mr. Gorman advised that the transaction as executed would be 
acceptable under applicable law as long as it would be documented by a 
qualified real estate appraiser that the price was at its fair market 
value.
    6. The applicant retained the services of Mr. William R. Johnson 
(Mr. Johnson), MAI, an accredited appraiser with the Johnson Real 
Estate Services, Inc., located in Fredericksburg, Virginia. Mr. Johnson 
appraised the Property on April 25, 1998. Mr. Johnson represented that 
he is a certified general real estate appraiser, and represented that 
he and his firm were independent of the parties involved. After 
analyzing the Property, Mr. Johnson concluded that the fair market 
value of the Property, the ``as is'' market value of the fee simple 
interest in the Property, was $125,000. In reaching this conclusion as 
to the value of the Property, Mr. Johnson used the sales comparison 
approach. Last, Mr. Johnson indicated in his report that the exposure 
time for this value is about 10 months and the estimated marketing time 
to be between 9 and 12 months.
    7. The applicant represents that on November 6, 1998, he purchased 
the limited partnership interests from the Plans for $125,000, the 
value of the Property as appraised by Mr. Johnson within the exposure 
time of 10 months.
    Mr. O'Neill allocated $49,874 to the Profit Sharing Plan for its 
interest and $75,126 to the Money Purchase Plan for its interest. Mr. 
O'Neill determined to convert the Property into an office building for 
Cullen Inc. The cost of the conversion was $245,000. The applicant 
represents that Cullen Inc. currently leases the Property.
    8. The applicant represents that in late 1998, Cullen Inc. learned 
that Mr. Gorman had sold his business and his company and left the 
area. O'Neill secured the services of Phipps, Buckholder, located in 
Fredericksburg, Virginia, to provide administrative services and tax 
return preparation for the Plans. Phipps, Buckholder discovered the 
prohibited transaction during the review of the records of the Plans. 
Shortly thereafter, the applicant voluntarily sought advice from 
counsel and accordingly, filed this exemption application with the 
Department.
    9. The applicants represent that the exemption would be 
administratively feasible in that unwinding the transaction would 
likely cause losses to the Plans. It is in the interest of the Plans' 
participants and beneficiaries because the Plans' assets are now more 
liquid and investments can be more diversified. It is protective of 
their rights because the parties to the transaction obtained an 
independent appraisal prior to consummating the transaction and the 
purchase price of the Property was equal to its fair market value.
    10. In summary, the Applicant represents that the requested 
retroactive individual exemption will satisfy the criteria of section 
408(a) of the Act for the following reasons: (a) the Sale was a one 
time transaction for a lump sum cash payment; (b) the Plans received 
the fair market value of the Property at the time of the transaction; 
(c) the fair market value of the Property was determined by an 
independent, qualified real estate appraiser; and (d) the Plans paid no 
commissions or other expenses relating to the Sale.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 25th day of January, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 00-2122 Filed 1-31-00; 8:45 am]
BILLING CODE 4510-29-U