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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Investors Savings Bank Pension Plan (the Plan) [10/08/2002]

[PDF Version]

Volume 67, Number 195, Page 62827-62832


[[Page 62827]]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-47; Exemption Application No. D-
10989 et al.]

 
Grant of Individual Exemptions; Investors Savings Bank Pension 
Plan (the Plan)

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.

Investors Savings Bank

    Pension Plan (the Plan) Located in Milburn, New Jersey
    [Prohibited Transaction Exemption 2002-47; Exemption Application 
No. D-10989]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the past sales by the Plan of certain securities 
(the Securities) to Investors Savings Bank, a party in interest with 
respect to the Plan, provided that the following conditions were 
satisfied: (1) Each sale was a one-time transaction for cash; (2) the 
Plan paid no commissions nor other expenses relating to the sales; (3) 
for each Security that was publicly traded, the Plan received an amount 
equal to the highest, as of the date of the sale, of (a) the Plan's 
cost, (b) the book value, or (c) the fair market value of the Security, 
as determined by an independent, third-party market source; and (4) for 
each Security that was not publicly traded, the Plan received an amount 
equal to its cost for the Security, which was in excess of the fair 
market value of the Security on the date of the sale.
    Effective Date: The exemption is effective as of January 4, 1999.
    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 August 9, 2002 at 67 FR 
51877.
    For Further Information Contact: Ms. Karin Weng of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

Deutsche Bank AG and Its Affiliates Located in Frankfurt am Main, 
Germany

[Prohibited Transaction Exemption 2002-48; Exemption Application No. D-
10991]

Exemption

Section I--Transactions

    The restrictions of section 406(a)(1)(A) through (D) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply, as of April 24, 2001, to
    (a) The lending of securities, under certain ``exclusive 
borrowing'' arrangements, to
    (1) Deutsche Bank AG (Deutsche Bank) (including the New York Branch 
of Deutsche Bank (DBNY)); or
    (2) Its affiliates Deutsche Bank Securities Inc. (DBS), Deutsche 
Bank Trust Company Americas (DBT), the ``Foreign Borrowers'' (as 
defined in Section III), and any branch or affiliate of Deutsche Bank 
that, now or in the future, is a U.S. registered broker-dealer or a 
government securities broker or dealer or a U.S. bank (collectively, 
with Deutsche Bank, referred to as the ``Borrowers,'' as defined in 
Section III) by employee benefit plans (Plans), including commingled 
investment funds holding assets of such Plans, with respect to which 
the Borrowers are a party in interest; and
    (b) the receipt of compensation by Deutsche Bank or its affiliates 
in connection with the securities lending transactions, provided that 
the conditions, set forth in Section II, are satisfied.

Section II--Conditions

    (a) For each Plan, neither the Borrower nor any affiliate has or 
exercises discretionary authority or control over the Plan's investment 
in the securities available for loan, nor do they render investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets.
    (b) The party in interest dealing with the Plan is a party in 
interest with respect to the Plan (including a fiduciary) solely by 
reason of providing services to the Plan, or solely by reason of a 
relationship to a service provider described in section 3(14)(F), (G), 
(H), or (I) of the Act.
    (c) The Borrower directly negotiates an exclusive borrowing 
agreement (the Borrowing Agreement) with a Plan fiduciary that is 
independent of the Borrower and its affiliates.
    (d) The terms of each loan of securities by a Plan to a Borrower 
are at least as favorable to such Plan as those of a comparable arm's 
length transaction between unrelated parties, taking into account the 
exclusive arrangement.
    (e) In exchange for granting the Borrower the exclusive right to 
borrow certain securities, the Plan receives from the Borrower either 
(i) a flat fee (which may be equal to a percentage of the value of the 
total securities subject to the Borrowing Agreement from time to time), 
(ii) a periodic payment that is equal to a percentage of the value of 
the total balance of the outstanding borrowed securities, or (iii) any 
combination of (i) and (ii) (collectively,

[[Page 62828]]

the Exclusive Fee). If the Borrower deposits cash collateral, all the 
earnings generated by such cash collateral shall be returned to the 
Borrower--provided that the Borrower may, but shall not be obligated 
to, agree with the independent fiduciary of the Plan that a percentage 
of the earnings on the collateral may be retained by the Plan, or the 
Plan may agree to pay the Borrower a rebate fee and retain the earnings 
on the collateral (the Shared Earnings Compensation). If the Borrower 
deposits non-cash collateral, all earnings on the non-cash collateral 
shall be returned to the Borrower--provided that the Borrower may, but 
shall not be obligated to, agree to pay the Plan a lending fee (the 
Lending Fee) (the Lending Fee and the Shared Earnings Compensation are 
collectively referred to as the ``Transaction Lending Fee''). The 
Transaction Lending Fee, if any, shall be either in addition to the 
Exclusive Fee or an offset against such Exclusive Fee. The Exclusive 
Fee and the Transaction Lending Fee may be determined in advance or 
pursuant to an objective formula, and may be different for different 
securities or different groups of securities subject to the Borrowing 
Agreement. Any change in the Exclusive Fee or the Transaction Lending 
Fee that the Borrower pays to the Plan with respect to any securities 
loan requires the prior written consent of the independent fiduciary of 
the Plan, except that consent is presumed where the Exclusive Fee or 
the Transaction Lending Fee changes pursuant to an objective formula. 
Where the Exclusive Fee or the Transaction Lending Fee changes pursuant 
to an objective formula, the independent fiduciary of the Plan must be 
notified at least 24 hours in advance of such change and such 
independent Plan fiduciary must not object in writing to such change, 
prior to the effective time of such change.
    (f) The Borrower may, but shall not be required to, agree to 
maintain a minimum balance of borrowed securities subject to the 
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar 
amount, a flat percentage, or other percentage determined pursuant to 
an objective formula.
    (g) By the close of business on or before the day the loaned 
securities are delivered to the Borrower, the Plan receives from the 
Borrower (by physical delivery, book entry in a securities depository 
located in the United States, wire transfer, or similar means) 
collateral consisting of U.S. currency, securities issued or guaranteed 
by the U.S. Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank other than 
Deutsche Bank or any affiliate thereof, or any combination thereof, or 
other collateral permitted under Prohibited Transaction Exemption (PTE) 
81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754, May 19, 
1987) (and as further amended or superseded).\1\ Such collateral will 
be deposited and maintained in an account which is separate from the 
Borrower's accounts and will be maintained with an institution other 
than the Borrower. For this purpose, the collateral may be held with a 
third party, an affiliate of the Borrower, or a branch of Deutsche Bank 
other than the Borrower that is a trustee or custodian of the Plan. If 
maintained by an affiliate of the Borrower or a branch of Deutsche Bank 
other than the Borrower, the collateral will be segregated from the 
assets of such affiliate or branch.
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    \1\ PTE 81-6 provides an exemption under certain conditions from 
section 406(a)(1)(A) through (D) of the Act and the corresponding 
provisions of section 4975(c) of the Code for the lending of 
securities that are assets of an employee benefit plan to a U.S. 
broker-dealer registered under the Securities Exchange Act of 1934 
(the 1934 Act) (or exempted from registration under the 1934 Act as 
a dealer in exempt Government securities, as defined therein) or to 
a U.S. bank, that is a party in interest with respect to such plan.
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    (h) The market value (or in the case of a letter of credit, the 
stated amount) of the collateral initially equals at least 102 percent 
of the market value of the loaned securities on the close of business 
on the day preceding the date of the loan and, if the market value of 
the collateral at any time falls below 100 percent (or such higher 
percentage as the Borrower and the independent fiduciary of the Plan 
may agree upon) of the market value of the loaned securities, the 
Borrower delivers additional collateral on the following day to bring 
the level of the collateral back to at least 102 percent. The level of 
the collateral is monitored daily by the Plan or its designee, which 
may be Deutsche Bank or any of its branches or affiliates, including 
DBT, which provides custodial or directed trustee services in respect 
of the securities covered by the Borrowing Agreement for the Plan. The 
Borrowing Agreement will provide the Plan with a continuing security 
interest in, and a lien on, the collateral, or will provide for the 
transfer of title to the collateral to the Plan.
    (i) Before entering into a Borrowing Agreement, the Borrower 
furnishes to the Plan the most recent publicly available audited and 
unaudited statements of its financial condition, as well as any 
publicly available information which it believes is necessary for the 
independent fiduciary to determine whether the Plan should enter into 
or renew the Borrowing Agreement--provided, however, that in the case 
of a Borrower that is a branch of Deutsche Bank, the Borrower will 
furnish to the Plan the most recent publicly available audited and 
unaudited statement of Deutsche Bank's financial condition.
    (j) The Borrowing Agreement contains a representation by the 
Borrower that, as of each time it borrows securities, there has been no 
material adverse change in its financial condition since the date of 
the most recently furnished statements of financial condition.
    (k) The Plan receives the equivalent of all distributions made 
during the loan period, including, but not limited to, cash dividends, 
interest payments, shares of stock as a result of stock splits, and 
rights to purchase additional securities, that the Plan would have 
received (net of tax withholdings) \2\ had it remained the record owner 
of the securities.
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    \2\ The Department notes the Borrowers' representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan are subject to foreign tax withholdings and that the 
Borrower will always put the Plan back in at least as good a 
position as it would have been had it not loaned securities.
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    (l) The Borrowing Agreement and/or any securities loan outstanding 
may be terminated by either party at any time without penalty (except 
for, if the Plan has terminated its Borrowing Agreement, the return to 
the Borrower of a pro-rata portion of the Exclusive Fee paid by the 
Borrower to the Plan) whereupon the Borrower delivers securities 
identical to the borrowed securities (or the equivalent thereof in the 
event of reorganization, recapitalization, or merger of the issuer of 
the borrowed securities) to the Plan within the lesser of five business 
days of written notice of termination or the customary settlement 
period for such securities.
    (m) In the event that the Borrower fails to return securities in 
accordance with the Borrowing Agreement, the Plan or its agent will 
have the right under the Borrowing Agreement to purchase securities 
identical to the borrowed securities and apply the collateral to 
payment of the purchase price. If the collateral is insufficient to 
satisfy the Borrower's obligation to return the Plan's securities, the 
Borrower will indemnify the Plan in the United States with respect to 
the difference between the replacement cost of securities and the 
market value of the collateral on the

[[Page 62829]]

date the loan is declared in default, together with expenses incurred 
by the Plan plus applicable interest at a reasonable rate, including 
reasonable attorneys' fees incurred by the Plan for legal action 
arising out of default on the loans, or failure by the Borrower to 
properly indemnify the Plan.
    (n) Except as otherwise provided herein, all procedures regarding 
the securities lending activities, at a minimum, conform to the 
applicable provisions of PTE 81-6 (as amended or superseded), as well 
as to applicable securities laws of the United States, Germany, the 
United Kingdom, Japan, Canada, and/or Australia, as appropriate.
    (o) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to lend securities to the 
Borrowers--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, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangements with the 
Borrowers, the foregoing $50 million requirement shall be deemed 
satisfied if such trust or other entity has aggregate assets which are 
in excess of $50 million--provided that if the fiduciary responsible 
for making the investment decision on behalf of such master trust or 
other entity is not the employer or an affiliate of the employer, such 
fiduciary has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations, or employee 
organization, 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 Borrowers, the foregoing $50 
million requirement is satisfied if such trust or other entity has 
aggregate assets which are in excess of $50 million (excluding the 
assets of any Plan with respect to which the fiduciary responsible for 
making the investment decision on behalf of such group trust or other 
entity or any member of the controlled group of corporations including 
such fiduciary is the employer maintaining such Plan or an employee 
organization whose members are covered by such Plan). However, the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity.
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million. (In 
addition, none of the entities described above is formed for the sole 
purpose of making loans of securities.)
    (p) Prior to any Plan's approval of the lending of its securities 
to the Borrowers, a copy of this exemption (and the notice of pendency) 
is provided to the Plan, and the Borrower informs the independent 
fiduciary that the Borrower is not acting as a fiduciary of the Plan in 
connection with its borrowing securities from the Plan.\3\
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    \3\ The Department notes the Borrowers' representation that, 
under the exclusive borrowing arrangements, neither the Borrower nor 
any of its affiliates will perform the essential functions of a 
securities lending agent, i.e., the Borrowers will not be the 
fiduciary who negotiates the terms of the Borrowing Agreement on 
behalf of the Plan, the fiduciary who identifies the appropriate 
borrowers of the securities, or the fiduciary who decides to lend 
securities pursuant to an exclusive arrangement. However, the 
Borrowers or their affiliates may monitor the level of collateral 
and the value of the loaned securities.
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    (q) The independent fiduciary of the Plan receives monthly reports 
with respect to the securities lending transactions, including, but not 
limited to, the information set forth in the following sentence, so 
that an independent Plan fiduciary may monitor such transactions with 
the Borrowers. The monthly report will list for a specified period all 
outstanding or closed securities lending transactions. The report will 
identify for each open loan position, the securities involved, the 
value of the security for collateralization purposes, the current value 
of the collateral, the rebate or premium (if applicable) at which the 
security is loaned, and the number of days the security has been on 
loan. At the request of the Plan, such a report will be provided on a 
daily or weekly basis, rather than a monthly basis. Also, upon request 
of the Plan, the Borrower will provide the Plan with daily 
notifications of securities lending transactions.
    (r) In addition to the above conditions, all loans involving 
Foreign Borrowers must satisfy the following supplemental requirements:
    (1) Such Foreign Borrower is subject to regulation by (i) the 
Bundesanstalt fuer Finanzdienstleistungsaufsicht (the BAFin) in 
Germany, (ii) the Financial Services Authority and the Securities and 
Futures Authority in the United Kingdom, (iii) the Ministry of Finance 
or the Financial Services Agency and the Tokyo Stock Exchange or the 
Osaka Stock Exchange in Japan, (iv) the Office of the Superintendent of 
Financial Institutions Canada, Ontario Securities Commission, and the 
Investment Dealers Association in Canada, or (v) the Australian 
Prudential Regulation Authority, Australian Securities and Investments 
Commission, and the Australian Stock Exchange Limited in Australia, or 
any governmental regulatory authority that is a successor in interest 
to any such regulator.
    (2) Such Foreign Borrower is in compliance with all applicable 
provisions of Rule 15a-6 (17 C.F.R. 240.15a-6) under the Securities 
Exchange Act of 1934 (the 1934 Act) that provides foreign broker-
dealers a limited exception from U.S. registration requirements;
    (3) All collateral is maintained in U.S. dollars or in U.S. dollar-
denominated securities or letters of credit, or other collateral 
permitted under PTE 81-6 (as amended or superseded);
    (4) All collateral is held in the United States and the situs of 
the Borrowing Agreement is maintained in the United States under an 
arrangement that complies with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 C.F.R. 2550.404(b)-1; and
    (5) Prior to entering into a transaction involving a Foreign 
Borrower, the Foreign Borrower must:
    (i) Agree to submit to the jurisdiction of the United States;
    (ii) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (iii) Consent to the service of process on the Process Agent; and
    (iv) Agree that enforcement by a Plan of the indemnity provided by 
the Foreign Borrower will occur in the U.S. courts.
    (s) The Borrower maintains, or causes to be maintained, within the 
United States for a period of six years from the date of such 
transaction, in a manner that is convenient and accessible for audit 
and examination, such records as are necessary to enable the persons 
described in paragraph (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

[[Page 62830]]

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

Section III--Definitions

    (a) An affiliate of a person means:
    (i) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with, the person. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual);
    (ii) Any officer, director, employee, or relative (as defined in 
section 3(15) of the Act) of any such other person or any partner in 
any such person; and
    (iii) Any corporation or partnership of which such person is an 
officer, director, or employee, or in which such person is a partner.
    (b) The term Foreign Borrower or Foreign Borrowers means Deutsche 
Bank or any broker-dealer or bank that, now or in the future, is a 
branch or an affiliate of Deutsche Bank that is subject to regulation 
by (i) the BAFin in Germany, (ii) the Financial Services Authority and 
the Securities and Futures Authority in the United Kingdom, (iii) the 
Ministry of Finance or the Financial Services Agency and the Tokyo 
Stock Exchange or the Osaka Stock Exchange in Japan, (iv) the Office of 
the Superintendent of Financial Institutions Canada, Ontario Securities 
Commission, and the Investment Dealers Association in Canada, or (v) 
the Australian Prudential Regulation Authority, Australian Securities 
and Investments Commission, and the Australian Stock Exchange Limited 
in Australia, or any governmental regulatory authority that is a 
successor in interest to any such regulator.
    (c) The term ``Borrower'' or ``Borrowers'' means DBS, DBNY, DBT, 
and the Foreign Borrowers, or any branch or affiliate of Deutsche Bank 
that, now or in the future, is a U.S. registered broker-dealer or a 
government securities broker or dealer or a U.S. bank.
    Effective Date:The exemption is effective as of April 24, 2001.
    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 July 3, 2002 at 67 FR 
44625.

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption (the Proposal). The comment was submitted 
by the applicant, who requested certain clarifying modifications and 
additions to the operative language in the final exemption, as well as 
to the Summary of Facts and Representations (the Summary) in the 
Proposal (see 67 FR 44625). The requested modifications and additions 
to both the operative language and the Summary, are discussed below.
    1. The applicant wished to clarify that the term ``Deutsche Bank'' 
includes its branches, such as Deutsche Bank AG, New York Branch 
(DBNY), and to add Deutsche Bank Trust Company Americas (DBT) to the 
list of covered Borrowers.
    Thus, Section I(a) of the Proposal (67 FR 44625, column 3) has been 
revised to read as follows (note deleted and italicized language):

    (1) Deutsche Bank AG (Deutsche Bank) (including the New York 
Branch of Deutsche Bank (DBNY)); or
    (2) its affiliates Deutsche Bank Securities Inc. (DBS), Deutsche 
Bank [delete ``AG, New York Branch (DBNY)''] Trust Company Americas 
(DBT), [delete ``and''] the ``Foreign Borrowers'' (as defined in 
Section III), and any branch or affiliate of Deutsche Bank that, now 
or in the future, is a U.S. registered broker-dealer or a government 
securities broker or dealer or a U.S. bank (collectively, with 
Deutsche Bank, referred to as the ``Borrowers,'' as defined in 
Section III)

    2. Similarly, Section III(b) of the Proposal (67 FR 44628, center 
column) defining ``Foreign Borrowers'' has been revised to read as 
follows (note deleted and italicized language):

    The term ``Foreign Borrower'' or ``Foreign Borrowers'' means 
Deutsche Bank or any broker-dealer or bank that, now or in the 
future, is a branch or an affiliate of Deutsche Bank that is subject 
to regulation by (i) the BAFin [delete ``BAK and the Deutsche 
Bundesbank''] in Germany,* * *, or (v) the Australian Prudential 
Regulation Authority, Australian Securities and Investments 
Commission, and the Australian Stock Exchange Limited in Australia, 
or any governmental regulatory authority that is a successor in 
interest to any such regulator.

    For an explanation regarding the ``BAFin'' and the italicized 
language added to the end of clause (v), above, see Comment 8, below.
    3. Further, Section III(c) of the Proposal (67 FR 44628, center 
column) defining ``Borrowers'' has been revised to read as follows 
(note deleted and italicized language):

    The term ``Borrower'' or ``Borrowers'' means [delete ``Deutsche 
Bank''] DBS, DBNY, DBT, and the Foreign Borrowers, [delete ``and''] 
or any [delete ``other''] branch or affiliate of Deutsche Bank that, 
now or in the future, is a U.S. registered broker-dealer or a 
government securities broker or dealer or a U.S. bank.

    4. The revisions in Comment 2, above, should also be made to the 
corresponding paragraph in Item 1 of the Summary (67 FR 44629, column 
1) (note deleted and italicized language):

    Deutsche Bank requests an individual exemption to cover DBNY, DBS, 
DBT, the Foreign Borrowers identified above, as well as any [delete 
``broker-dealer or bank''] other branch or affilate of Deutsche Bank 
that, now or in the future, is [delete ``an affiliate of Deutsche Bank 
that is''] (i) a U.S. registered broker-dealer or government securities 
broker or dealer or a U.S. bank, or (ii) that is subject to regulation 
by (a) the BAFin [delete ``BAK, and the Deutsche Bundesbank''] in 
Germany, (b) the Financial Services Authority and the Securities and 
Futures Authority in the United Kingdom, (c) the Ministry of Finance or 
the Financial Services Agency and the Tokyo Stock Exchange or the Osaka 
Stock Exchange in Japan, (d) the Office of the Superintendent of 
Financial Institutions Canada, Ontario

[[Page 62831]]

Securities Commission, and the Investment Dealers Association in 
Canada, or (e) the Australian Prudential Regulation Authority, 
Australian Securities and Investments Commission, and the Australian 
Stock Exchange Limited in Australia, or any governmental regulatory 
authority that is a successor in interest to any such regulator.
    5. The second sentence of Section II(h) of the Proposal (67 FR 
44626, center column) regarding monitoring of the collateral has been 
revised to read as follows (note deleted and italicized language):

    The level of the collateral is monitored daily by the Plan or 
its designee, which may be Deutsche Bank or any of its branches or 
affiliates, including [delete Deutsche Bank Trust Company Americas] 
DBT, which provides custodial or directed trustee services in 
respect of the securities covered by the Borrowing Agreement for the 
Plan.

    Further, the words ldquo;branches or'' should be added to the 
corresponding second sentence of the second paragraph in Item 10 of the 
Summary (67 FR 44631, center column).
    6. The applicant wished to add the italicized language, below, to 
the first sentence of Section II(m) of the Proposal (67 FR 44626, 
column 3) regarding default by the Borrower. Thus, Section II (m) has 
been revised to read as follows:

    In the event that the Borrower fails to return securities in 
accordance with the Borrowing Agreement, the Plan or its agent will 
have the right under the Borrowing Agreement to purchase securities 
identical to the borrowed securities and apply the collateral to 
payment of the purchase price.

    Further, the same addition should be made to the corresponding 
first sentence in Item 15 of the Summary (67 FR 44632, center column).
    7. The applicant stated that the use of the term ``confirmations'' 
in Section II(q) of the Proposal connotes confirmation slips described 
in Rule 10b-10 under the 1934 Act, which applies to securities 
transactions, not to securities lending transactions. Thus, the last 
sentence of Section II(q) (67 FR 44627, center column) has been revised 
to read as follows (note deleted and italicized language):

    Also, upon request of the Plan, the Borrower will provide the 
Plan with daily [delete ``confirmations''] notifications of 
securities lending transactions.

    Further, the same revision should be made to the corresponding last 
sentence in Item 10 of the Summary (67 FR 44631, column 3).
    8. The applicant stated that there has been a change in the 
identity of the governmental regulatory authority in Germany. Following 
the adoption on April 22, 2002 of the Law on Integrated Financial 
Services Supervision (Gesetz ueber die integrierte Finanzaufsicht--
FinDAG), the Federal Authority for Financial Services Supervision 
(Bundesanstalt fuer Finanzdienstleistungsaufsicht--BAFin) was 
established on May 1, 2002. The functions of the former offices for 
banking supervision (Gundesaufsichtsamt fuer das Kreditwesen--BAKred), 
insurance supervision (Bundesaufsichtsamt fuer das Versicherungswesen--
BAV), and securities supervision (Bundesaufsichtsamt fuer den 
Wertpapierhandel--BAWe) have been combined in 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 
BAFin has been created to ensure a consistent regulation and 
supervision of the financial services and markets in Germany through 
one single authority. The applicant also noted generally that, in 
foreign jurisdictions, the authority to regulate securities 
transactions and securities lending transactions may change from agency 
to agency, from time to time, or the legal name of the appropriate 
regulator may change.
    Thus, Section II(r)(1) of the Proposal (67 FR 44627, column 3), a 
supplemental requirement for Foreign Borrowers, has been revised to 
refer to the ``BAFin,'' as well as by adding the italicized language 
and the end of clause (v):

    (1) Such Foreign Borrower is subject to regulation by (i) the 
[delete ``Bundesaufsichtsamt fuer das Kreditwesen (the BAK) and the 
Deutsche Bundesbank''] Bundesanstalt fuer 
Finanzdienstleistungsaufsicht (the BAFin) in Germany, * * *, or (v) 
the Australian Prudential Regulation Authority, Australian 
Securities and Investments Commission, and the Australian Stock 
Exchange Limited in Australia, or any governmental regulatory 
authority that is a successor in interest to any such regulator.

    Further, consistent with the above (as well as Comments 2 & 4), 
paragraph (i) in Item 17 of the Summary (67 FR 44632, column 3), should 
be revised such that the Foreign Borrower may be a bank ``or a broker-
dealer'' that is subject to regulation by the various foreign 
regulators listed (substituting ``BAFin'' for ``BAK and the Deutsche 
Bundesbank''), as well as ``any governmental regulatory authority that 
is a successor in interest to any such regulator.''
    9. The applicant wished to correct duplicative references to 
Deutsche Bank, already included in the revised definitions of ``Foreign 
Borrower'' and ``Borrower.''
    Thus, the following revisions have been made to Section II(r)(5), 
(r)(5)(iv), and (s) of the Proposal (67 FR 44627, column 3) (note 
deleted language):

    (5) Prior to entering into a transaction involving a Foreign 
Borrower, [delete ``Deutsche Bank or``] the Foreign Borrower must * 
* *
    (iv) Agree that enforcement by a Plan of the indemnity provided 
by [delete ``Deutsche Bank or''] the Foreign Borrower will occur in 
the U.S. courts.
    (s) [Delete ``Deutsche Bank or''] The Borrower maintains, or 
causes to be maintained, within the United States for a period of 
six years * * *

    Further, the same revision should be made to Footnote 8 in Item 4 
of the Summary (67 FR 44630, column 1) as follows:

    Under certain circumstances described in the April 9, 1997 No-
Action Letter (e.g., clearance and settlement transactions), there 
may be direct transfers of funds and securities between a Plan and 
[delete ``Deutsche Bank or between a Plan a the Foreign Borrower * * 
*

    10. The applicant wished to make the following correction to the 
third paragraph in Item 1 of the Summary (67 FR 44628, column 3) (note 
deleted language):

    (c) Morgan Grenfell & Co., Ltd., located in London, is subject 
to regulation in the United Kingdom by the Financial Services 
Authority [delete ``in respect of prudential supervision''];

    11. The applicant wished to add the following sentence after the 
first sentence in Item 7 of the Summary (67 FR 44630, column 3):

    The form of the Borrowing Agreement to be used in foreign 
jurisdictions will reflect appropriate local industry or market 
standards. [FN 11]
    [FN 11] For example, the form of the Borrowing Agreement to be 
used in the United Kingdom differs from the standard U.S. Borrowing 
Agreement. Under the form Borrowing Agreement to be used in the 
United Kingdom, the Plan receives title to (rather than a pledge of 
or a security interest in) the collateral.

The applicant noted that the revisions, above, are consistent with the 
language of a similar recent exemption [see PTE 2002-33 (67 FR 42077, 
June 20, 2002)] for Morgan Stanley Dean Witter & Co. in the notice of 
proposed exemption relating thereto (67 FR 15241, March 29, 2002) (see 
67 FR at 15245, column 3, Item 8).

[[Page 62832]]

    12. The applicant wished to add a new Item 10 to follow Item 9 of 
the Summary (67 FR 44631, column 1), with the remaining items 
appropriately renumbered:

    10. An independent fiduciary of the Plan may provide written 
instructions directing that the investment of any cash collateral, 
or any portion thereof, be managed by Deutsche Bank or any branch or 
affiliate thereof, or be invested in one or more mutual funds 
managed by Deutsche Bank or any branch or affiliate thereof. 
Deutsche Bank or such branch or affiliate, as applicable, may 
receive a reasonable and customary investment management fee, 
provided that the independent fiduciary of the Plan approves such 
compensation arrangement, after receiving written disclosure of the 
compensation arrangement to be paid to Deutsche Bank or such branch 
or affiliate, as applicable, in connection with such investment 
management. The independent fiduciary of the Plan may revoke such 
written instructions at any time. [FN 12]
    [FN 12] This transaction is outside the scope of the proposed 
exemption. The Department notes that it is the responsibility of 
Deutsche Bank or such branch or affiliate to determine whether the 
conditions of section 408(b)(2) of the Act will be met with respect 
to the transaction (i.e., the reasonable contract or arrangement 
requirement and the reasonable compensation requirement).

The applicant noted that the paragraph and footnote, above, are 
consistent with the language of a similar recent exemption [see PTE 
2002-44 (67 FR 56597, September 4, 2002)] for Goldman, Sachs & Co. in 
the notice of proposed exemption relating thereto (67 FR 44633, July 3, 
2002) (see 67 FR 44640, column 1, Item 16).
    13. Finally, the applicant requested that the third sentence in old 
Item 10 of the Summary (67 FR 44631, center column), to be renumbered 
as Item 11, be revised to be consistent with Section II(g) of this 
exemption (note deleted and italicized language):

    For this purpose, the collateral may be held on behalf of the 
Plan [delete ``by''] with a third party, an affiliate of the 
Borrower, or a branch of Deutsche Bank other than the Borrower, that 
is [delete ``the''] a trustee or custodian of the Plan.

    The Department has modified the language of this exemption to 
reflect the applicant's clarifications to the record, as discussed 
above, and acknowledges such clarifications as they relate to the 
information contained in the Proposal, as published in the Federal 
Register on July 3, 2002.
    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: Ms. Karin Weng 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 3rd day of October, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 02-25599 Filed 10-7-02; 8:45 am]
BILLING CODE 4510-29-P