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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Deutsche Bank AG (DB) [09/23/2002]

[PDF Version]

Volume 67, Number 184, Page 59564-59573

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-45; Exemption Application No. D-
10924 et al.]

 
Grant of Individual Exemptions; Deutsche Bank AG (DB)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) 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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

[[Page 59565]]

Deutsche Bank AG (DB) Located in Germany, With Affiliates in New York, 
New York and Other Locations

[Prohibited Transaction Exemption 2002-45; Exemption Application No. D-
10924]

Exemption

Section I--Transactions

    The restrictions of section 406(a)(1)(A) through (D) and 406(b)(1) 
and (2) of the Act, section 8477(c)(2)(A) and (B) of FERSA, and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply to:
    (a) The lending of securities to:
    (1) Deutsche Bank Securities, Inc. (formerly DB Alex. Brown, Inc.), 
its successors or affiliates;
    (2) Any current or future affiliate of DB,\1\ that is a bank, as 
defined in section 202(a)(2) of the Investment Advisers Act of 1940, 
that is supervised by the U.S. or a state, any broker-dealer registered 
under the Securities Exchange Act of 1934 (the ``1934 Act''), or any 
foreign affiliate that is a bank or broker-dealer that is supervised by 
(i) the Securities and Futures Authority (``SFA'') in the United 
Kingdom; (ii) the Bundesanstalt fur Finanzdienstleistungsaufsicht (the 
``BAFin'') in Germany; (iii) the Ministry of Finance (``MOF'') and/or 
the Tokyo Stock Exchange in Japan; (iv) the Ontario Securities 
Commission, the Investment Dealers Association and/or the Office of 
Superintendent of Financial Institutions in Canada; (v) the Swiss 
Federal Banking Commission in Switzerland; and (vi) the Reserve Bank of 
Australia or the Australian Securities and Investments Commission and/
or Australian Stock Exchange Limited in Australia (the branches and/or 
affiliates in the six enumerated foreign countries hereinafter referred 
to as the ``Foreign Affiliates'') and together with the U.S. branches 
or affiliates (individually, ``Affiliated Borrower'' and collectively, 
``Affiliated Borrowers''), by employee benefit plans, including 
commingled investment funds holding plan assets (the Client Plans or 
Plans) \2\, for which DB or an affiliate acts as securities lending 
agent or subagent (the ``DB Lending Agent''),\3\ and also may serve as 
trustee, custodian or investment manager of securities being lent, or 
for which a subagent is appointed by a DB Lending Agent, which subagent 
is either (I) a bank, as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940 or a broker-dealer registered under the Securities 
Exchange Act of 1934, (i) which has, as of the last day of its most 
recent fiscal year, equity capital in excess of $100 million and (ii) 
which annually exercises discretionary authority to lend securities on 
behalf of clients equal to at least $1 billion; or (II) an investment 
adviser registered under the Investment Advisers Act of 1940, (i) which 
has, as of the last day of its most recent fiscal year, equity capital 
in excess of $1 million and (ii) which annually exercises the authority 
to lend securities equal to at least $1 billion (each, a ``Lending 
Subagent); and
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    \1\ Any reference to DB shall be deemed to include any 
successors thereto.
    \2\ The common and collective trust funds trusteed, custodied, 
and/or managed by DB or an affiliate, and in which Client Plans 
invest, are referred to herein as ``Commingled Funds.'' The Client 
Plan separate accounts trusteed, custodied, and/or managed by DB or 
an affiliate are referred to herein as ``Separate Accounts.'' 
Commingled Funds and Separate Accounts are collectively referred to 
herein as ``Lender'' or ``Lenders.''
    \3\ DB or an affiliate may be retained by primary securities 
lending agents to provide securities lending services in a sub-agent 
capacity with respect to portfolio securities of clients of such 
primary securities lending agents. As a securities lending sub-
agent, DB's role parallels that under the lending transactions for 
which DB or an affiliate acts as a primary securities lending agent 
on behalf of its clients. References to DB's performance of services 
as securities lending agent should be deemed to include its parallel 
performance as a securities lending sub-agent and references to the 
Client Plans should be deemed to include those plans for which the 
DB Lending Agent is acting as a sub-agent with respect to securities 
lending, unless otherwise specifically indicated or by the context 
of the reference.
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    (b) The receipt of compensation by the DB Lending Agent and the 
Lending Subagent in connection with these transactions.

Section II--Conditions

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

[[Page 59566]]

Agent, as lending agent to a Commingled Fund, and the Affiliated 
Borrowers, whichever is least.
    (f) The Separate Account, Commingled Fund or another custodian 
designated to act on behalf of the Client Plan, receives from each 
Affiliated Borrower (either by physical delivery, book entry in a 
securities depository located in the United States, wire transfer or 
similar means) by the close of business on or before the day the loaned 
securities are delivered to the Affiliated Borrower, collateral 
consisting of U.S. currency, securities issued or guaranteed by the 
United States Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank, other than DB 
(or any subsequent parent corporation of the DB Lending Agent) or an 
affiliate thereof, or any combination thereof, or other collateral 
permitted under Prohibited Transaction Exemption 81-6 (46 FR 7527, 
January 23, 1981) (PTE 81-6) (as it may be amended or superseded) 
(collectively, the Collateral). The Collateral will be held on behalf 
of a Client Plan in a depository account separate from the Affiliated 
Borrower.
    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the Collateral on the close of business on the day 
preceding the day of the loan is initially at least 102 percent of the 
market value of the loaned securities. The applicable Loan Agreement 
gives the Separate Account or the Commingled Fund in which the Client 
Plan has invested a continuing security interest in, and a lien on or 
title to, the Collateral. The level of the Collateral is monitored 
daily by the DB Lending Agent. If the market value of the Collateral, 
on the close of trading on a business day, is less than 100 percent of 
the market value of the loaned securities at the close of business on 
that day, the Affiliated Borrower is required to deliver, by the close 
of business on the next day, sufficient additional Collateral such that 
the market value of the Collateral will again equal 102 percent.
    (h)(1) For a Lender that is a Separate Account, prior to entering 
into a Loan Agreement, the applicable Affiliated Borrower furnishes its 
most recently available audited and unaudited statements to the DB 
Lending Agent which will, in turn, provide such statements to the 
Client Plan before the Client Plan approves the terms of the Loan 
Agreement. The Loan Agreement contains a requirement that the 
applicable Affiliated Borrower must give prompt notice at the time of a 
loan of any material adverse changes in its financial condition since 
the date of the most recently furnished financial statements. If any 
such changes have taken place, the DB Lending Agent will not make any 
further loans to the Affiliated Borrower unless an Independent 
Fiduciary of the Client Plan in a Separate Account is provided notice 
of any material change and approves the continuation of the lending 
arrangement in view of the changed financial condition.
    (2) For a Lender that is a Commingled Fund, the DB Lending Agent 
will furnish upon reasonable request to an Independent Fiduciary of 
each Client Plan invested in the Commingled Fund the most recently 
available audited and unaudited financial statements of the applicable 
Affiliated Borrower prior to authorization of lending, and annually 
thereafter.
    (i) In the case of Commingled Funds, the information described in 
paragraph (c) (including any information with respect to any material 
change in the arrangement) shall be furnished by the DB Lending Agent 
as lending fiduciary to the Independent Fiduciary of each Client Plan 
whose assets are invested in the Commingled Fund, not less than 30 days 
prior to implementation of the arrangement or material change to the 
lending arrangement as previously described to the Client Plan, and 
thereafter, upon the reasonable request of the Client Plan's 
Independent Fiduciary. In the event of a material adverse change in the 
financial condition of an Affiliated Borrower, the DB Lending Agent 
will make a decision, using the same standards of credit analysis the 
DB Lending Agent would use in evaluating unrelated borrowers, whether 
to terminate existing loans and whether to continue making additional 
loans to the Affiliated Borrower.
    In the event any such Independent Fiduciary submits a notice in 
writing within the 30 day period provided in the preceding paragraph to 
the DB Lending Agent, as lending fiduciary, objecting to the 
implementation of, material change in, or continuation of the 
arrangement, the Plan on whose behalf the objection was tendered is 
given the opportunity to terminate its investment in the Commingled 
Fund, without penalty to the Plan, no later than 35 days after the 
notice of withdrawal is received. In the case of a Plan that elects to 
withdraw pursuant to the foregoing, such withdrawal shall be effected 
prior to the implementation of, or material change in, the arrangement; 
but an existing arrangement need not be discontinued by reason of a 
Plan electing to withdraw. In the case of a Plan whose assets are 
proposed to be invested in the Commingled Fund subsequent to the 
implementation of the arrangement, the Plan's investment in the 
Commingled Fund shall be authorized in the manner described in 
paragraph (c).
    (j) In return for lending securities, the Lender either--
    (1) Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash Collateral. (Under such circumstances, the Lender 
may pay a loan rebate or similar fee to the Affiliated Borrowers, if 
such fee is not greater than the fee the Lender would pay in a 
comparable arm's length transaction with an unrelated party.)
    (k) Except as otherwise expressly provided herein, all procedures 
regarding the securities lending activities will, at a minimum, conform 
to the applicable provisions of PTE 81-6 and Prohibited Transaction 
Exemption 82-63 (46 FR 14804, April 6, 1982) (PTE 82-63), both as 
amended or superseded, as well as to applicable securities laws of the 
United States, the United Kingdom, Canada, Australia, Switzerland, 
Japan and Germany.
    (l) If any event of default occurs, to the extent that (i) 
liquidation of the pledged Collateral or (ii) additional cash received 
from the Affiliated Borrower does not provide sufficient funds on a 
timely basis, the Client Plan will have the right to purchase 
securities identical to the borrowed securities (or their equivalent as 
discussed above) and apply the Collateral to the payment of the 
purchase price. If the Collateral is insufficient to accomplish such 
purchase, the Borrower will indemnify the Client Plan invested in a 
Separate Account or Commingled Fund in the United States with respect 
to the difference between the replacement cost of securities and the 
market value of the Collateral on the date the loan is declared in 
default, together with expenses incurred by the Client Plan plus 
applicable interest at a reasonable rate, including reasonable 
attorney's fees incurred by the Client Plan for legal action arising 
out of default on the loans, or failure by the Borrower to properly 
indemnify the Client Plan. The Borrower's indemnification will enable 
the Client Plan to collect on any indemnification from a U.S.-domiciled 
affiliate of DB.
    (m) The Lender receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including but not limited to all interest and dividends on the loaned 
securities,

[[Page 59567]]

shares of stock as a result of stock splits and rights to purchase 
additional securities, or other distributions.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to any Affiliated Borrower, a copy of this exemption and the 
notice of proposed exemption (67 FR 9070, February 27, 2002) (the 
Notice) is provided to the Client Plan.
    (o) The Independent Fiduciary of each Client Plan that is invested 
in a Separate Account is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations of the 
Notice, so that the Independent Fiduciary may monitor such transactions 
with the Affiliated Borrower. The Independent Fiduciary invested in a 
Commingled Fund is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations of the 
Notice, so that the Independent Fiduciary may monitor such transactions 
with the Affiliated Borrower. The DB Lending Agent may, in lieu of 
providing the quarterly reports described in this paragraph (o) to each 
Independent Fiduciary of a Client Plan invested in a Commingled Fund, 
provide such Independent Fiduciary with the certification of an auditor 
selected by the DB Lending Agent who is independent of the DB Lending 
Agent (but who may or may not be independent of the Client Plan) that 
the loans appear no less favorable to the Lender than the pricing 
established in the schedule described in Representation 16 of the 
Notice. Where the Independent Fiduciary of a Client Plan invested in a 
Commingled Fund is provided the certification of an auditor, such 
Independent Fiduciary shall be entitled to receive the quarterly 
reports upon request.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
Affiliated Borrowers; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangement with the DB Lending 
Agent, the foregoing $50 million requirement shall be deemed satisfied 
if such trust or other entity has aggregate assets which are in excess 
of $50 million; provided that if the fiduciary responsible for making 
the investment decision on behalf of such master trust or other entity 
is not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan Asset Regulation, which entity 
is engaged in securities lending arrangements with the DB Lending 
Agent, the foregoing $50 million requirement is satisfied if such trust 
or other entity has aggregate assets which are in excess of $50 million 
(excluding the assets of any Client Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (A) Has full investment responsibility with respect to plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.
    (q) With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders will be to borrowers unrelated to the DB Lending 
Agent.
    (r) In addition to the above, all loans involving foreign 
Affiliated Borrowers have the following requirements:
    (1) The foreign Affiliated Borrower is a bank, supervised either by 
a state or the United States, a broker-dealer registered under the 
Securities Exchange Act of 1934 or a bank or broker-dealer that is 
supervised by (1) the SFA in the United Kingdom; (2) the BAFin in 
Germany; (3) the MOF and/or the Tokyo Stock Exchange in Japan; (4) the 
Ontario Securities Commission, the Investment Dealers Association and/
or the Office of Superintendent of Financial Institutions in Canada; 
(5) the Swiss Federal Banking Commission in Switzerland; and (6) the 
Reserve Bank of Australia or the Australian Securities and Investments 
Commission and/or Australian Stock Exchange Limited in Australia;
    (2) The foreign Affiliated Borrower is in compliance with all 
applicable provisions of Rule 15a-6 under the Securities Exchange Act 
of 1934 (17 CFR 240.15a-6) (Rule 15a-6) which provides foreign broker-
dealers a limited exemption from United States registration 
requirements;
    (3) All Collateral is maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit (unless an 
applicable exemption provides otherwise);
    (4) All Collateral is held in the United States and the situs of 
the securities lending agreements is maintained in the United States 
under an arrangement that complies with the indicia of ownership 
requirements under section 404(b) of the Act and the regulations 
promulgated under 29 CFR 2550.404(b)-1 related to the lending of 
securities; and
    (5) Prior to a transaction involving a foreign Affiliated Borrower, 
the foreign Affiliated Borrower--
    (A) Agrees to submit to the jurisdiction of the United States;
    (B) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consents to service of process on the Process Agent; and
    (D) Agrees that enforcement by a Client Plan of the indemnity 
provided by the Borrower may occur in the United States courts.
    (s) The DB Lending Agent maintains, or causes to be maintained, 
within the United States for a period of six years from the date of 
such transaction, in a manner that is convenient and accessible for 
audit and examination, such records as are necessary to enable the 
persons described in paragraph (t)(1) to determine whether the 
conditions of the exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the DB Lending 
Agent and/or its affiliates, the records are lost or

[[Page 59568]]

destroyed prior to the end of the six-year period; and
    (2) No party in interest other than the DB Lending Agent or its 
affiliates shall be subject to the civil penalty that may be assessed 
under section 502(i) of the Act, or to the taxes imposed by section 
4975(a) and (b) of the Code, if the records are not maintained, or are 
not available for examination as required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of sections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs (t)(1)(B)-
(t)(1)(D) are authorized to examine the trade secrets of the DB Lending 
Agent or its affiliates or commercial or financial information which is 
privileged or confidential.

Section III--Definitions

    (a) DB Plan: An ERISA covered employee benefit plan sponsored and 
maintained by the DB Lending Agent and/or an affiliate for its own 
employees.
    (b) Index Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by the DB Lending Agent or 
an affiliate, in which one or more investors invest, and--
    (1) which is designed to track the rate of return, risk profile and 
other characteristics of an Index by either (i) replicating the same 
combination of securities which compose such Index or (ii) sampling the 
securities which compose such Index based on objective criteria and 
data;
    (2) for which the DB Lending Agent or its affiliate does not use 
its discretion, or data within its control, to affect the identity or 
amount of securities to be purchased or sold;
    (3) that contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; and,
    (4) that involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund which is intended to 
benefit the DB Lending Agent or its affiliate or any party in which the 
DB Lending Agent or its affiliate may have an interest.
    (c) Model-Driven Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by the DB Lending Agent or 
an affiliate, in which one or more investors invest, and--
    (1) which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third-party data, not 
within the control of the DB Lending Agent or an affiliate, to 
transform an Index;
    (2) which contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; and
    (3) that involves no agreement, arrangement or understanding 
regarding the design or operation of the Fund or the utilization of any 
specific objective criteria which is intended to benefit the DB Lending 
Agent, any affiliate of the DB Lending Agent, or any party in which the 
DB Lending Agent or any affiliate may have an interest.
    (d) Index: a securities index that represents the investment 
performance of a specific segment of the public market for equity or 
debt securities in the United States and/or foreign countries, but only 
if--
    (1) The organization creating and maintaining the index is--
    (A) Engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients,
    (B) A publisher of financial news or information, or
    (C) A public stock exchange or association of securities dealers;
    (2) The index is created and maintained by an organization 
independent of DB; and
    (3) The index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of the DB 
Lending Agent or an affiliate.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice.

Written Comments

    The Department received one comment letter, which was submitted by 
DB, with respect to the Notice. In the comment letter, DB requested 
several clarifications and changes to the proposed exemption.
    DB requested that the Department amend section II(l) concerning the 
requirement for an indemnification of a Client Plan in the event of a 
default by the Borrower, to make it conform to other recent exemptions 
issued by the Department.\4\ The Department has amended section II(l) 
and (r) accordingly. DB also requested that the Department make clear 
that there will be no indemnification from the DB Lending Agent where 
to do so would violate banking laws.\5\ The Department notes that, 
since section II(l) of the final exemption has been changed so that 
only the Borrower will be required to indemnify the Client Plans, the 
comment is no longer relevant. However, the language of the exemption 
has been modified to clarify that the Borrower's indemnification must 
enable the Client Plan to collect on any indemnification from a U.S.-
domiciled affiliate of DB.
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    \4\ For example, see Prohibited Transaction Exemption (PTE) 99-
50, 65 FR 534 (January 5, 2000), regarding Bankers Trust Company; 
and PTE 2001-41, 66 FR 53449 (October 22, 2001) regarding Barclays 
Bank PLC and Barclays Capital, Inc. (see section II(m), 66 FR at 
53451).
    \5\ See PTE 99-50, section II(j) and Footnote 2, 65 FR at 535, 
column 1, wherein the applicant stated that the DB Lending Agent 
would provide an indemnification to the extent permitted by law and 
that where the law prohibits such an indemnification by the DB 
Lending Agent, the Affiliated Borrower would provide the identical 
indemnification.
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    DB also requested in its comment letter that the Department clarify 
that the exemption applies when DB or an affiliate is the Lending Agent 
or subagent, as well as when DB is the Lending Agent and a third party 
is the subagent. In this regard, the third party subagent would have to 
follow all of the requirements of the exemption and be either a broker-
dealer registered under the 1934 Act, an investment adviser registered 
under the Investment Advisers Act of 1940, or a bank as defined in 
section 202(a)(2) of the Investment Advisers Act of 1940. Any such 
third party subagent would also be subject to certain dollar minimums 
of equity capital and of value of securities loaned for which the 
subagent exercises authority. The Department has adopted this comment 
and has amended section I(a)(2) of the exemption accordingly.
    DB also requested a change to the independent audit requirement in 
section II(o). DB believes that the requirement that the Independent 
Fiduciary of each Client Plan be provided with the certification of an

[[Page 59569]]

independent auditor, in addition to quarterly reports for the 
securities lending transactions, would be duplicative and 
administratively burdensome for DB with respect to Client Plans 
invested in Separate Accounts. Accordingly, the Department has modified 
section II(o) to permit the DB Lending Agent to provide an Independent 
Fiduciary of a Client Plan invested in a Separate Account only with 
quarterly reports. In addition, the Independent Fiduciary of each 
Client Plan invested in a Commingled Fund can be provided with the 
certification of an independent auditor in lieu of the provision of 
quarterly reports. However, as indicated in the Notice, such 
Independent Fiduciaries would be entitled to receive the quarterly 
reports upon request.
    Finally, DB informed the Department that certain entities within DB 
have recently changed their names. Bankers Trust Company is now 
Deutsche Bank Trust Company Americas. DB Alex. Brown Securities, Inc. 
is now Deutsche Bank Securities, Inc., and Deutsche Banc Alex. Brown, 
Inc. is now also named Deutsche Bank Securities, Inc.
    The Department has also been informed that there has been a change 
in the identity of the governmental regulatory authority in Germany. 
According to the applicant, following the adoption of the Law on 
Integrated Financial Services Supervision (Gesetz uber die integrierte 
Finanzaufsicht--FinDAG), the Federal Authority for Financial Services 
Supervision (Bundesanstalt fur Finanzdienstleistungsaufsicht--
``BAFin'') was established in Germany on May 1, 2002. The functions of 
the former offices for banking supervision (Bundesaufsichtsamt fur das 
Kreditwesen--``the BAK''), along with other governmental authorities 
for insurance and securities supervision, have been combined into a 
single state regulator that supervises banks, financial services 
institutions and insurance undertakings across the entire financial 
market and comprises all the key functions of consumer protection and 
solvency supervision. The new Federal Authority for Financial Services 
Supervision has been created to ensure a consistent regulation and 
supervision of the financial services and markets in Germany through 
one single governmental authority.
    Accordingly, based upon the information contained in the entire 
record, the Department has determined to grant the proposed exemption 
as modified herein.
    For Further Information Contact: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number).

Barclays Global Investors, N.A. (BGI) Located in San Francisco, 
California

[Prohibited Transaction Exemption 2002-46; Exemption Application No. D-
10925]

Exemption

Section I--Transactions

    The restrictions of section 406(a)(1)(A) through (D) and 406(b)(1) 
and (2) of the Act, section 8477(c)(2)(A) and (B) of FERSA, and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply to:
    (a) The lending of securities to:
    (1) Barclays Capital Inc., its successors or affiliates (BC NY);
    (2) Barclays Capital Securities Limited, its successors or 
affiliates (BC UK);
    (3) Barclays Global Investors Services, its successors or 
affiliates (BGIS);
    (4) Barclays Global Investors Services Canada Limited, its 
successors or affiliates (BGIS Canada); and
    (5) Any future affiliate of BGI,\6\ subject to the regulatory 
requirements applicable to BC NY, BC UK, BGIS and/or BGIS Canada 
(individually, ``Borrower'' and collectively, ``Borrowers''), which are 
domestic or foreign broker-dealers, by employee benefit plans, 
including commingled investment funds holding plan assets (the Client 
Plans or Plans),\7\ for which BGI, an affiliate of the proposed 
Borrowers, acts as securities lending agent or subagent \8\ and also 
may serve as trustee, custodian or investment manager of securities 
being lent; and
---------------------------------------------------------------------------

    \6\ Any reference to BGI shall be deemed to include any 
successors thereto.
    \7\ The common and collective trust funds trusteed, custodied, 
and/or managed by BGI, and in which Client Plans invest, are 
referred to herein as ``Commingled Funds.'' The Client Plan separate 
accounts trusteed, custodied, and/or managed by BGI are referred to 
herein as ``Separate Accounts.'' Commingled Funds and Separate 
Accounts are collectively referred to herein as ``Lender'' or 
``Lenders.''
    \8\ BGI may be retained by primary securities lending agents to 
provide securities lending services in a sub-agent capacity with 
respect to portfolio securities of clients of such primary 
securities lending agents. As a securities lending sub-agent, BGI's 
role parallels that under the lending transactions for which BGI 
acts as a primary securities lending agent on behalf of its clients. 
References to BGI's performance of services as securities lending 
agent should be deemed to include its parallel performance as a 
securities lending sub-agent and references to the Client Plans 
should be deemed to include those plans for which BGI is acting as a 
sub-agent with respect to securities lending, unless otherwise 
specifically indicated or by the context of the reference.
---------------------------------------------------------------------------

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

Section II--Conditions

    Section I of this exemption applies only if the conditions of 
Section II are satisfied. For purposes of this exemption, any 
requirement that the approving fiduciary be independent of BGI or the 
Borrower shall not apply in the case of a Barclays Plan invested in a 
Commingled Fund, provided that at all times, the holdings of all 
Barclays Plans in the aggregate comprise less than 10% of the assets of 
the Commingled Fund.
    (a) For each Client Plan, neither BGI nor any affiliate (except as 
expressly permitted herein) has or exercises discretionary authority or 
control with respect to the investment of the assets of Client Plans 
involved in the transaction or renders investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to such assets, including 
decisions concerning a Client Plan's acquisition or disposition of 
securities available for loan.
    This paragraph (a) will be deemed satisfied notwithstanding that 
BGI exercises discretionary authority or control or renders investment 
advice in connection with an Index Fund or Model-Driven Fund managed by 
BGI in which Client Plans invest.
    (b) Any arrangement for BGI to lend securities is approved in 
advance by a Plan fiduciary who is independent of BGI (the Independent 
Fiduciary).
    (c) The specific terms of the securities loan agreement (the Loan 
Agreement) are negotiated by BGI which acts as a liaison between the 
Lender and the Borrower to facilitate the securities lending 
transaction. In the case of a Separate Account, the Independent 
Fiduciary of a Client Plan approves the general terms of the Loan 
Agreement between the Client Plan and the Borrower as well as any 
material change in such Loan Agreement. In the case of a Commingled 
Fund, approval is pursuant to the procedure described in paragraph (i), 
below.
    (d) The terms of each loan of securities by a Lender to a Borrower 
are at least as favorable to such Separate Account or Commingled Fund 
as those of a comparable arm's length transaction between unrelated 
parties.
    (e) A Client Plan, in the case of a Separate Account, may terminate 
the lending agency or sub-agency arrangement at any time, without 
penalty, on five business days notice. A Client Plan in the case of a 
Commingled Fund may terminate its participation in the lending 
arrangement by terminating

[[Page 59570]]

its investment in the Commingled Fund no later than 35 days after the 
notice of termination of participation is received, without penalty to 
the Plan, in accordance with the terms of the Commingled Fund. Upon 
termination, the Borrowers will transfer securities identical to the 
borrowed securities (or the equivalent thereof in the event of 
reorganization, recapitalization or merger of the issuer of the 
borrowed securities) to the Separate Account or, if the Plan's 
withdrawal necessitates a return of securities, to the Commingled Fund, 
within:
    (1) The customary delivery period for such securities;
    (2) Five business days; or
    (3) The time negotiated for such delivery by the Client Plan, in a 
Separate Account, or by BGI, as lending agent to a Commingled Fund, and 
the Borrowers, whichever is least.
    (f) The Separate Account, Commingled Fund or another custodian 
designated to act on behalf of the Client Plan, receives from each 
Borrower (either by physical delivery, book entry in a securities 
depository located in the United States, wire transfer or similar 
means) by the close of business on or before the day the loaned 
securities are delivered to the Borrower, collateral consisting of U.S. 
currency, securities issued or guaranteed by the United States 
Government or its agencies or instrumentalities, irrevocable bank 
letters of credit issued by a U.S. bank, other than Barclays Bank PLC 
(Barclays) (or any subsequent parent corporation of BGI, BC NY, BC UK, 
BGIS and BGIS Canada) or an affiliate thereof, or any combination 
thereof, or other collateral permitted under Prohibited Transaction 
Exemption 81-6 (46 FR 7527, January 23, 1981) (PTE 81-6) (as it may be 
amended or superseded) (collectively, the Collateral). The Collateral 
will be held on behalf of a Client Plan in a depository account 
separate from the Borrower.
    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the Collateral on the close of business on the day 
preceding the day of the loan is initially at least 102 percent of the 
market value of the loaned securities. The applicable Loan Agreement 
gives the Separate Account or the Commingled Fund in which the Client 
Plan has invested a continuing security interest in and a lien on or 
title to the Collateral. The level of the Collateral is monitored daily 
by BGI. If the market value of the Collateral, on the close of trading 
on a business day, is less than 100 percent of the market value of the 
loaned securities at the close of business on that day, the Borrower is 
required to deliver, by the close of business on the next day, 
sufficient additional Collateral such that the market value of the 
Collateral will again equal 102 percent.
    (h)(1) For a Lender that is a Separate Account, prior to entering 
into a Loan Agreement, the applicable Borrower furnishes its most 
recently available audited and unaudited statements to BGI which will, 
in turn, provide such statements to the Client Plan before the Client 
Plan approves the terms of the Loan Agreement. The Loan Agreement 
contains a requirement that the applicable Borrower must give prompt 
notice at the time of a loan of any material adverse changes in its 
financial condition since the date of the most recently furnished 
financial statements. If any such changes have taken place, BGI will 
not make any further loans to the Borrower unless an Independent 
Fiduciary of the Client Plan in a Separate Account is provided notice 
of any material change and approves the continuation of the lending 
arrangement in view of the changed financial condition.
    (2) For a Lender that is a Commingled Fund, BGI will furnish upon 
reasonable request to an Independent Fiduciary of each Client Plan 
invested in the Commingled Fund the most recently available audited and 
unaudited financial statements of the applicable Borrower prior to 
authorization of lending, and annually thereafter.
    (i) In the case of Commingled Funds, the information described in 
paragraph (c) (including any information with respect to any material 
change in the arrangement) shall be furnished by BGI as lending 
fiduciary to the Independent Fiduciary of each Client Plan whose assets 
are invested in the Commingled Fund, not less than 30 days prior to 
implementation of the arrangement or material change to the lending 
arrangement as previously described to the Client Plan, and thereafter, 
upon the reasonable request of the Client Plan's Independent Fiduciary. 
In the event of a material adverse change in the financial condition of 
a Borrower, BGI will make a decision, using the same standards of 
credit analysis BGI would use in evaluating unrelated borrowers, 
whether to terminate existing loans and whether to continue making 
additional loans to the Borrower.
    In the event any such Independent Fiduciary submits a notice in 
writing within the 30 day period provided in the preceding paragraph to 
BGI, as lending fiduciary, objecting to the implementation of, material 
change in, or continuation of the arrangement, the Plan on whose behalf 
the objection was tendered is given the opportunity to terminate its 
investment in the Commingled Fund, without penalty to the Plan, no 
later than 35 days after the notice of withdrawal is received. In the 
case of a Plan that elects to withdraw pursuant to the foregoing, such 
withdrawal shall be effected prior to the implementation of, or 
material change in, the arrangement; but an existing arrangement need 
not be discontinued by reason of a Plan electing to withdraw. In the 
case of a Plan whose assets are proposed to be invested in the 
Commingled Fund subsequent to the implementation of the arrangement, 
the Plan's investment in the Commingled Fund shall be authorized in the 
manner described in paragraph (c).
    (j) In return for lending securities, the Lender either--
    (1) Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash Collateral. (Under such circumstances, the Lender 
may pay a loan rebate or similar fee to the Borrowers, if such fee is 
not greater than the fee the Lender would pay in a comparable arm's 
length transaction with an unrelated party.)
    (k) Except as otherwise expressly provided herein, all procedures 
regarding the securities lending activities will, at a minimum, conform 
to the applicable provisions of PTE 81-6 and Prohibited Transaction 
Exemption 82-63 (46 FR 14804, April 6, 1982) (PTE 82-63), both as 
amended or superseded, as well as to applicable securities laws of the 
United States, the United Kingdom and Canada.
    (l) If any event of default occurs, to the extent that (i) 
liquidation of the pledged Collateral or (ii) additional cash received 
from the Borrower does not provide sufficient funds on a timely basis, 
the Client Plan will have the right to purchase securities identical to 
the borrowed securities (or their equivalent) and apply the Collateral 
to payment of the purchase price. If the Collateral is insufficient to 
accomplish such purchase, the Borrower will indemnify the Client Plan 
invested in a Separate Account or Commingled Fund in the United States 
with respect to the difference between the replacement cost of 
securities and the market value of the Collateral on the date the loan 
is declared in default, together with expenses incurred by the Client 
Plan plus applicable interest at a reasonable rate, including 
reasonable attorneys' fees incurred by the Client Plan for legal action 
arising out of default on the loans, or failure by the Borrower to

[[Page 59571]]

properly indemnify the Client Plan. The Borrower's indemnification will 
enable the Client Plan to collect on any indemnification from a U.S.-
domiciled BGI affiliate.
    (m) The Lender receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including but not limited to all interest and dividends on the loaned 
securities, shares of stock as a result of stock splits and rights to 
purchase additional securities, or other distributions.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to any Borrower, a copy of this exemption and the notice of 
proposed exemption (67 FR 9082, February 27, 2002) (the Notice) is 
provided to the Client Plan.
    (o) The Independent Fiduciary of each Client Plan that is invested 
in a Separate Account is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations of the 
Notice, so that the Independent Fiduciary may monitor such transactions 
with the Borrower. The Independent Fiduciary of a Client Plan invested 
in a Commingled Fund is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including but not limited to, the information described in 
Representation 24 of the Summary of Facts and Representations of the 
Notice, so that the Independent Fiduciary may monitor such transactions 
with the Borrower. BGI may, in lieu of providing the quarterly reports 
described in this paragraph (o) to each Independent Fiduciary of a 
Client Plan invested in a Commingled Fund, provide such Independent 
Fiduciary with the certification of an auditor selected by BGI who is 
independent of BGI (but who may or may not be independent of the Client 
Plan) that the loans appear no less favorable to the Lender than the 
pricing established in the schedule described in Representation 16 of 
the Notice. Where the Independent Fiduciary of a Client Plan invested 
in a Commingled Fund is provided the certification of an auditor, such 
Independent Fiduciary shall be entitled to receive the quarterly 
reports upon request.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
Borrowers; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangement with BGI, the 
foregoing $50 million requirement shall be deemed satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million; provided that if the fiduciary responsible for making the 
investment decision on behalf of such master trust or other entity is 
not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan Asset Regulation, which entity 
is engaged in securities lending arrangements with BGI, the foregoing 
$50 million requirement is satisfied if such trust or other entity has 
aggregate assets which are in excess of $50 million (excluding the 
assets of any Client Plan with respect to which the fiduciary 
responsible for making the investment decision on behalf of such group 
trust or other entity or any member of the controlled group of 
corporations including such fiduciary is the employer maintaining such 
Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity:
    (A) Has full investment responsibility with respect to plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.
    (q) With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders will be to borrowers unrelated to BGI.
    (r) In addition to the above, all loans involving foreign Borrowers 
have the following requirements:
    (1) The foreign Borrower is registered as a broker-dealer subject 
to regulation by the Securities and Futures Authority of the United 
Kingdom (the SFA) or the Ontario Securities Commission of Ontario, 
Canada (the OSC);
    (2) The foreign Borrower is in compliance with all applicable 
provisions of Rule 15a-6 under the Securities Exchange Act of 1934 (17 
CFR 240.15a-6)(Rule 15a-6) which provides foreign broker-dealers a 
limited exemption from United States registration requirements;
    (3) All Collateral is maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit (unless an 
applicable exemption provides otherwise);
    (4) All Collateral is held in the United States and the situs of 
the securities lending agreements is maintained in the United States 
under an arrangement that complies with the indicia of ownership 
requirements under section 404(b) of the Act and the regulations 
promulgated under 29 CFR 2550.404(b)-1 related to the lending of 
securities; and
    (5) Prior to a transaction involving a foreign Borrower, the 
foreign Borrower--
    (A) Agrees to submit to the jurisdiction of the United States;
    (B) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consents to service of process on the Process Agent; and
    (D) Agrees that enforcement by a Client Plan of the indemnity 
provided by the foreign Borrower may occur in the United States courts.
    (s) BGI maintains, or causes to be maintained, within the United 
States for a period of six years from the date of such transaction, in 
a manner that is convenient and accessible for audit and examination, 
such records as are necessary to enable the persons described in 
paragraph (t)(1) to determine whether the conditions of the exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of BGI and/or its 
affiliates, the records are lost or destroyed prior to the end of the 
six-year period; and
    (2) No party in interest other than BGI or its affiliates shall be 
subject to the civil penalty that may be assessed under section 502(i) 
of the Act, or to the taxes imposed by section 4975(a) and (b) of the 
Code, if the records are not maintained, or are not available for

[[Page 59572]]

examination as required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of sections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs (t)(1)(B)-
(t)(1)(D) are authorized to examine the trade secrets of BGI or its 
affiliates or commercial or financial information which is privileged 
or confidential.

Section III--Definitions

    (a) Barclays Plan: An ERISA covered employee benefit plan sponsored 
and maintained by BGI and/or an affiliate for its own employees.
    (b) Index Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by BGI or an affiliate, in 
which one or more investors invest, and--
    (1) Which is designed to track the rate of return, risk profile and 
other characteristics of an Index by either (i) replicating the same 
combination of securities which compose such Index or (ii) sampling the 
securities which compose such Index based on objective criteria and 
data;
    (2) For which BGI or its affiliate does not use its discretion, or 
data within its control, to affect the identity or amount of securities 
to be purchased or sold;
    (3) That contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; and,
    (4) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund which is intended to 
benefit BGI or its affiliate or any party in which BGI or its affiliate 
may have an interest.
    (c) Model-Driven Fund: Any investment fund, account or portfolio 
sponsored, maintained, trusteed or managed by BGI or an affiliate, in 
which one or more investors invest, and--
    (1) Which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third-party data, not 
within the control of BGI or an affiliate, to transform an Index;
    (2) Which contains ``plan assets'' subject to the Act, pursuant to 
the Department's Plan Asset Regulation; and
    (3) That involves no agreement, arrangement or understanding 
regarding the design or operation of the Fund or the utilization of any 
specific objective criteria which is intended to benefit BGI, any 
affiliate of BGI, or any party in which BGI or any affiliate may have 
an interest.
    (d) Index: a securities index that represents the investment 
performance of a specific segment of the public market for equity or 
debt securities in the United States and/or foreign countries, but only 
if--
    (1) The organization creating and maintaining the index is--
    (A) Engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients,
    (B) A publisher of financial news or information, or
    (C) A public stock exchange or association of securities dealers;
    (2) The index is created and maintained by an organization 
independent of Barclays; and
    (3) The index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of BGI.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice of Proposed Exemption published on February 27, 2002 at 67 
FR 9082.

Written Comments

    The Department received two comment letters, both submitted by the 
applicants, with respect to the Notice. In the comment letters, the 
applicants requested several changes to the proposed exemption.
    The applicants requested that the Department amend section II(l) 
concerning the requirement for indemnification of a Client Plan in the 
event of a default by the Borrower, to make it conform to other recent 
exemptions issued by the Department.\9\ The Department has amended 
section II(l) accordingly.
---------------------------------------------------------------------------

    \9\ For example, see Prohibited Transaction Exemption (PTE) 99-
50, 65 FR 534 (January 5, 2000), regarding Bankers Trust Company; 
and PTE 2001-41, 66 FR 53449 (October 22, 2001), regarding Barclays 
Bank PLC and Barclays Capital, Inc. (see section II(m), 66 FR at 
53451).
---------------------------------------------------------------------------

    The applicants also requested that the Department amend section 
II(l) to state that indemnification would be provided only by the 
Borrower of securities and not by BGI, as lending agent. The 
applicants' position is that the proper indemnitor is the Borrower of 
the securities. The applicants noted that, in the case of a foreign 
Borrower, the exemption would require the Borrower to agree to submit 
to the jurisdiction of the United States and that any enforcement of 
the indemnity would occur in the United States courts. The Department 
concurs with the applicants' request provided that the Client Plans 
would not have to sue overseas to enforce any judgment obtained. The 
language of section II(l) has been revised to clarify that the 
indemnification provided by the Borrower must permit the Client Plan to 
collect on any indemnification from a U.S.-domiciled BGI affiliate. The 
language of section II(r)(5)(D) likewise has been revised to reflect 
that indemnification would be provided by the Borrower.
    The applicants additionally requested a change to the independent 
audit requirement in section II(o). The applicants requested relief 
similar to that sought by Deutsche Bank AG (Deutsche Bank) in its 
comment with respect to Exemption Application No. D-10924. Deutsche 
Bank stated that the requirement that the Independent Fiduciary of each 
Client Plan be provided with the certification of an independent 
auditor, in addition to quarterly reports for securities lending 
transactions, would be duplicative and administratively burdensome for 
Deutsche Bank with respect to Client Plans invested in Separate 
Accounts. The Department concurred with Deutsche Bank's comment and 
modified section II(o) of the final exemption granted to Deutsche Bank. 
Accordingly, the Department has determined to modify section II(o) of 
this exemption as well.
    As modified, section II(o) permits BGI to provide an Independent 
Fiduciary of a Client Plan invested in a Separate Account only with 
quarterly reports. In addition, the Independent Fiduciary of each 
Client Plan invested in a Commingled Fund can be provided with the 
certification of an independent auditor in lieu of the provision of 
quarterly reports. However, as indicated in the Notice, such 
Independent

[[Page 59573]]

Fiduciaries would be entitled to receive the quarterly reports upon 
request.
    Finally, BGI requested that the proposed exemption be amended and 
expanded to include a new affiliate, Barclays Global Investors Services 
Canada Limited (BGIS Canada), as an additional Borrower.
    In this regard, BGI requested that the following be added to Item 1 
of the Summary of Facts and Representations of the Notice with regard 
to BGIS Canada:

    BGIS Canada is a broker-dealer located in Toronto, Ontario, 
Canada. BGIS Canada is subject to regulation in Canada by the 
Ontario Securities Commission (OSC) and the oversight of the 
Investment Dealers Association (IDA). BGIS Canada anticipates that 
in the future it will borrow securities in the ordinary course of 
its business.

    BGI also requested the following representation be added to Item 27 
of the Summary of Facts and Representations of the Notice:

    BGIS Canada is subject to regulation in Canada by the OSC and 
the oversight of the IDA, a self-regulatory organization, and is, 
therefore, authorized to conduct an investment banking business in 
and from Canada as a broker-dealer. The applicants note that the 
Department has previously concluded, in connection with PTE 99-04 
issued to Salomon Smith Barney, Inc. that the regulatory scheme 
applicable to broker-dealers in Canada is sufficiently similar to 
the regulatory scheme applicable to broker-dealers in the United 
States. The applicants make the following representation, 
substantially similar to the representation set forth in paragraph 
(2) of the Summary of Facts and Representations of the published 
application number D-10288 (63 FR 53703, October 6, 1998) submitted 
to the Department by Salomon Brothers, Inc. and granted to Salomon 
Smith Barney, Inc. as PTE 99-04.
    The applicants represent that BGIS Canada is subject to 
regulation by the OSC, a Canadian governmental agency and the 
oversight of the IDA, which oversees BGIS Canada's operation on a 
day to day basis and monitors compliance with capital adequacy and 
record keeping requirements on a regular basis. The applicants 
further represent that registration of BGIS Canada with the OSC 
addresses regulatory concerns similar to those concerns addressed by 
registration of a broker-dealer with the SEC under the 1934 Act. The 
rules and regulations set forth by the OSC and the SEC share a 
common objective: the protection of the investor by the regulation 
of securities markets. Canada has comprehensive financial resource 
and reporting/disclosure rules concerning broker-dealers. Broker-
dealers are required to demonstrate their capital adequacy. The 
reporting/disclosure rules impose requirements on broker-dealers 
with respect to risk management, internal controls, and records 
relating to counterparties. All such records must be produced at the 
request of the OSC or IDA at any time. The OSC's registration 
requirements for broker-dealers are enforced by fines and penalties 
and thus constitute a comprehensive disciplinary system for the 
violation of such rules.

    BGI further requests that the Department amend the first two 
sentences of Item 28 of the Summary of Facts and Representations of the 
Notice to read as follows:

    In addition to the protections afforded by registration with the 
SFA or the OSC, as applicable, the applicants represent that BC UK 
and BGIS Canada will comply with the applicable provisions of Rule 
15a-6 (described below). The applicants represent that compliance by 
BC UK and BGIS Canada with the requirements of Rule 15a-6 will offer 
additional protections in lieu of registration with the SEC.

    Finally, BGI requests that the Department reference BGIS Canada in 
the following sections of the proposed exemption: section I(a), section 
II(f), (k) and (r) and Items 1, 3, 12, 20, 21 and 29(e) and (g) of the 
Summary of Facts and Representations of the Notice. BGI states that in 
most cases this involves only the addition of ``BGIS Canada'' to the 
text. However, BGI requests that section II(r)(1) be amended to read as 
follows:

    The foreign Borrower is registered as a broker-dealer subject to 
regulation by the Securities and Futures Authority of the United 
Kingdom (the SFA) or the Ontario Securities Commission of Ontario, 
Canada (the OSC);

BGI also requests that the reference to the SFA in Item 29(h) of the 
Summary of Facts and Representations of the Notice be modified to read 
``the SFA or the OSC, as applicable.''
    The Department concurs with BGI's comments with regard to BGIS 
Canada and has made the requested revisions to the language of the 
final exemption.
    Accordingly, after giving full consideration to the entire record, 
including the comments, the Department has determined to grant the 
exemption as modified above. For further information regarding the 
comments and other matters discussed herein, interested persons are 
encouraged to obtain copies of the exemption application file 
(Exemption Application No. D-10925) the Department is maintaining in 
this case. The complete application file, as well as the comments and 
all supplemental submissions received by the Department, are made 
available for public inspection in the Public Disclosure Room of the 
Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington DC 20210.
    For Further Information Contact: Karen Lloyd of the Department, 
telephone (202) 693-8540. (This is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions 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) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 18th day of September, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 02-24136 Filed 9-20-02; 8:45 am]
BILLING CODE 4510-29-P