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Employee Benefits Security Administration

EBSA Federal Register Notice

Grant of Individual Exemption Involving The Bear Stearns Companies, Inc. (BS), Bear Stearns Asset Management Inc. (BSAM), and Bear, Stearns & Co. Inc. (BSC) (Collectively, the Applicants) Located in New York, NY [02/12/2007]

[PDF Version]

Volume 72, Number 28, Page 6595-6601

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2007-03; Exemption Application No. D-
11381]

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

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

ACTION: Grant of individual exemption.

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SUMMARY: This document contains a final exemption issued by the 
Department of Labor (the Department) that provides relief from certain 
prohibited transaction restrictions of the Employee Retirement Income 
Security Act of 1974 (the Act) and the Internal Revenue Code of 1986 
(the Code). The exemption permits the purchase of certain securities 
(the Securities), by an asset management affiliate of BS from any 
person other than such asset management affiliate of BS or any 
affiliate thereof, during the existence of an underwriting or selling 
syndicate with respect to such Securities, where a broker-dealer 
affiliated with BS (the Affiliated Broker-Dealer) is a manager or 
member of such syndicate and the asset management affiliate of BS 
purchases such Securities, as a fiduciary: (a) On behalf of an employee 
benefit plan or employee benefit plans (Client Plan(s)); or (b) on 
behalf of Client Plans, and/or in-house plans (In-House Plans) which 
are invested in a pooled fund or in pooled funds (Pooled Fund(s)); 
provided certain conditions as set forth, below are satisfied (An 
affiliated underwriter transaction (AUT)).\1\ The exemption affects 
Client Plans and In-House Plans and their participants and 
beneficiaries.
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    \1\ For purposes of this exemption an In-House Plan may engage 
in AUT's only through investment in a Pooled Fund.

EFFECTIVE DATE: This exemption is effective as of the date it is 
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published in the Federal Register.

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

SUPPLEMENTARY INFORMATION: On November 24, 2006, the Department 
published a Notice of Proposed Exemption (the Notice) in the Federal 
Register at 71 FR 67904. The document contained a proposed individual 
exemption from the restrictions of section 406 of the Act and section 
4975(c)(1)(A) through (F) of the Code. The proposed exemption had been 
requested in an application filed by the Applicants, pursuant to 
section 408(a) of the Act, and in accordance with the procedures set 
forth in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Accordingly, this exemption is being issued 
solely by the Department.
    The proposed exemption gave interested persons an opportunity to 
comment and to request a hearing. In this regard, all interested 
persons were invited to submit written comments or requests for a 
hearing on the pending exemption on or before January 8, 2007.
    The Applicants informed the Department in a letter dated January 5, 
2007, that the Notice along with the supplemental statement (the 
Supplemental Statement), described at 29 CFR 2570.43(b)(2) of the 
Department's regulations, was sent by December 9, 2006, via first class 
mail to all Interested Persons with the exception of two (2) such 
Interested Persons. The Applicant further informed the Department that 
the Notice and the Supplemental Statement was sent by December 13, 
2006, via first class mail to these two (2) remaining Interested 
Persons. In light of the fact that notification to these Interested 
Persons was delayed and in order to allow such Interested Persons the 
benefit of the full thirty (30) day comment period, the Department 
required, and the Applicants agreed to, an extension of the deadline 
within which these two (2) Interested Persons could comment or request 
a hearing on the proposed exemption. In this regard, in accordance with 
the Department's instructions, the Applicants sent a letter on December 
19, 2006, to these Interested Persons notifying them that the comment 
period was extended until January 15, 2007. All comments were made part 
of the record.
    During the comment period, the Department received no requests for 
a hearing. The Department did receive a comment letter from the 
Applicants. The written comments and the responses are discussed below.

Written Comments

    In a letter dated, January 5, 2007, the Applicants' suggested 
revisions of the language in paragraph 19 of the Summary of Facts and 
Representations, as published in the Notice at 71 FR 67907, column 1, 
lines 58-69, and column 2, lines 1-22, in order to reflect changes in 
the law regarding ``hot issues.''
    The Department concurs with the Applicants' suggested revisions. In 
this regard, paragraph 19 of the Summary of Facts and Representations, 
as set forth in the Notice, should have read as follows:

    19. Assuming that the marketing efforts have produced sufficient 
indications of interest, the Applicants represent that the issuer of 
the securities and the selling syndicate managers together will set 
the price of the securities and ask the SEC to declare the 
registration effective. After the registration statement becomes 
effective and the underwriting agreement is executed, the 
underwriters contact those investors that have indicated an interest 
in purchasing securities in the offering to execute the sales. The 
Applicants represent that offerings are often oversubscribed, and 
many have an over-allotment option that the underwriters can 
exercise to acquire additional shares from the issuer. Where an 
offering is oversubscribed, the underwriters decide how to allocate 
the securities among the potential purchasers. However, pursuant to 
the National Association of Securities Dealers Rule 2790, new issue 
securities (as defined under such rule) may not be sold directly to:

[[Page 6596]]

Officers, directors, general partners or associated persons of any 
broker-dealer (other than limited business broker-dealers); any 
person who has the authority to buy or sell securities for: A bank, 
saving and loan institution, insurance and investment companies, 
investment advisors and collective investment accounts; and certain 
of the family members of such persons (collectively, ``restricted 
persons''). Restricted persons may still participate, to a limited 
extent, in allocations of ``new issues'' through pooled investment 
vehicles in which they invest and may receive directly new issue 
allocations in certain other limited circumstances.

    In addition to the comment letter submitted by the Applicants, the 
Department received a telephone inquiry from a commentator seeking 
clarification of Section II(b) of the exemption. Section II(b), as set 
forth in the Notice, at 71 FR 67910, column 1, lines 31-55, reads as 
follows:

    (b) The issuer of the Securities to be purchased has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, unless--
    (1) Such Securities are non-convertible debt securities rated in 
one of the four highest rating categories by at least one nationally 
recognized statistical rating organization, i.e., Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps 
Credit Rating Co., or Fitch IBCA, Inc., or their successors 
(collectively, the Rating Organizations); or
    (2) Such Securities are issued or fully guaranteed by a person 
described, above, in Section II(a)(1)(i)(A); or
    (3) Such Securities are fully guaranteed by a person described, 
above, in Section II(a)(1)(i)(B), (C), or (D), who has issued the 
Securities and who has been in continuous operation for not less 
than three years, including the operation of any predecessors.

    The Department has determined to amend the language of Section 
II(b), as set forth in this exemption, as follows:

    (b) The issuer of the Securities to be purchased pursuant to 
this exemption must have been in continuous operation for not less 
than three years, including the operation of any predecessors, 
unless the Securities to be purchased --
    (1) are non-convertible debt securities rated in one of the four 
highest rating categories by Standard & Poor's Rating Services, 
Moody's Investors Service, Inc., FitchRatings, Inc., Dominion Bond 
Rating Service Limited, Dominion Bond Rating Service, Inc., or any 
successors thereto (collectively, the Rating Organizations); 
provided that none of the Rating Organizations rates such securities 
in a category lower than the fourth highest rating category; or
    (2) are debt securities issued or fully guaranteed by the United 
States or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted 
by the Congress of the United States; or
    (3) are debt securities which are fully guaranteed by a person 
(the Guarantor) that has been in continuous operation for not less 
than three years, including the operation of any predecessors, 
provided that such Guarantor has issued other securities registered 
under the 1933 Act; or if such Guarantor has issued other securities 
which are exempt from such registration requirement, such Guarantor 
has been in continuous operation for not less than three years, 
including the operation of any predecessors, and such Guarantor:
    (a) is a bank; or
    (b) is an issuer of securities which are exempt from such 
registration requirement, pursuant to a Federal statute other than 
the 1933 Act; or
    (c) is an issuer of securities that are the subject of a 
distribution and are of a class which is required to be registered 
under section 12 of the Securities Exchange Act of 1934 (the 1934 
Act) (15 U.S.C. 781), and are issued by an issuer that has been 
subject to the reporting requirements of section 13 of the 1934 Act 
(15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months.

    Further, the Department has amended the definition of Rating 
Organizations in Section III(k) of this exemption and has changed the 
reference to the Rating Organizations found in Section II(b)(1) of this 
exemption. In this regard, the Department has added Dominion Bond 
Rating Service Limited and Dominion Bond Rating Service, Inc. to the 
list of Rating Organizations. In addition, the Department has reflected 
the recent merger of Duff & Phelps Credit Rating Co. and Fitch IBCA, 
Inc., by including the name of the surviving organization, 
FitchRatings, Inc., and deleting Duff & Phelps Credit Rating Co. from 
the list of Rating Organizations.
    For further information regarding the comments or other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-11381) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, is 
made available for public inspection in the Public Disclosure Room of 
the Employee Benefits Security Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comments received, the Department has decided to 
grant the exemption.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act does not relieve a fiduciary or other 
party in interest from certain other provisions of the Act, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which require, among other things, a fiduciary to 
discharge his or her duties respecting the plan solely in the interest 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act.
    (2) The exemption does not extend to transactions prohibited under 
section 406(b)(3) of the Act.
    (3) In accordance with section 408(a) of the Act, the Department 
makes the following determinations:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interest of the plans and of their 
participants and beneficiaries; and
    (c) The exemption set forth herein is protective of the rights of 
participants and beneficiaries of the plans.
    (4) The exemption is supplemental to, and not in derogation of, any 
other provisions of the Act, including statutory or administrative 
exemptions. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.
    Accordingly, the following exemption is granted under the authority 
of section 408(a) of the Act and section 4975(c)(2) of the Code, and in 
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B 
(55 FR 32836, 32847, August 10, 1990).

Exemption

Section I--Transactions

    The restrictions of section 406 of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (F) of the Code, shall not apply to 
the purchase of certain securities (the Securities), as defined, below 
in Section III(h), by an asset management affiliate of BS, as 
``affiliate'' is defined, below, in Section III(c), from any person 
other than such asset management affiliate of BS or any affiliate 
thereof, during the existence of an underwriting or selling syndicate 
with respect to such Securities, where a broker-dealer affiliated with 
BS (the Affiliated Broker-Dealer), as defined, below, in Section 
III(b), is a manager or member of such syndicate and the asset 
management

[[Page 6597]]

affiliate of BS purchases such Securities, as a fiduciary:
    (a) On behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined, below, in Section III(e); or
    (b) on behalf of Client Plans, and/or In-House Plans, as defined, 
below, in Section III(l), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined, below, in Section III(f); 
provided that the conditions as set forth, below, in Section II, are 
satisfied (An affiliated underwriter transaction (AUT)).\2\
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    \2\ For purposes of this exemption an In-House Plan may engage 
in AUT's only through investment in a Pooled Fund.
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Section II--Conditions

    The exemption is conditioned upon adherence to the material facts 
and representations described herein and upon satisfaction of the 
following requirements:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or
    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible 
Rule 144A Offering of the Securities is of equity securities, the 
offering syndicate shall obtain a legal opinion regarding the adequacy 
of the disclosure in the offering memorandum;
    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased pursuant to this 
exemption must have been in continuous operation for not less than 
three years, including the operation of any predecessors, unless the 
Securities to be purchased--
    (1) are non-convertible debt securities rated in one of the four 
highest rating categories by Standard & Poor's Rating Services, Moody's 
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating 
Service Limited, Dominion Bond Rating Service, Inc., or any successors 
thereto (collectively, the Rating Organizations); provided that none of 
the Rating Organizations rates such securities in a category lower than 
the fourth highest rating category; or
    (2) are debt securities issued or fully guaranteed by the United 
States or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States; or
    (3) are debt securities which are fully guaranteed by a person (the 
Guarantor) that has been in continuous operation for not less than 
three years, including the operation of any predecessors, provided that 
such Guarantor has issued other securities registered under the 1933 
Act; or if such Guarantor has issued other securities which are exempt 
from such registration requirement, such Guarantor has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, and such Guarantor:
    (a) Is a bank; or
    (b) is an issuer of securities which are exempt from such 
registration requirement, pursuant to a Federal statute other than the 
1933 Act; or
    (c) is an issuer of securities that are the subject of a 
distribution and are of a class which is required to be registered 
under section 12 of the Securities Exchange Act of 1934 (the 1934 Act) 
(15 U.S.C. 781), and are issued by an issuer that has been subject to 
the reporting requirements of section 13 of the 1934 Act (15 U.S.C. 
78m) for a period of at least ninety (90) days immediately preceding 
the sale of such securities and that has filed all reports required to 
be filed thereunder with the Securities and Exchange Commission (SEC) 
during the preceding twelve (12) months.
    (c) The aggregate amount of Securities of an issue purchased, 
pursuant to this exemption, by the asset management affiliate of BS 
with: (i) the assets of all Client Plans; and (ii) the assets, 
calculated on a pro-rata basis, of all Client Plans and In-House Plans 
investing in Pooled Funds managed by the asset management affiliate of 
BS; and (iii) the assets of plans to which the asset management 
affiliate of BS renders investment advice within the meaning of 29 CFR 
2510.3-21(c) does not exceed:
    (1) 10 percent (10%) of the total amount of the Securities being 
offered in an issue, if such Securities are equity securities;
    (2) 35 percent (35%) of the total amount of the Securities being 
offered in an issue, if such Securities are debt securities rated in 
one of the four highest rating categories by at least one of the Rating 
Organizations; provided that none of the Rating Organizations rates 
such Securities in a category lower than the fourth highest rating 
category; or
    (3) 25 percent (25%) of the total amount of the Securities being 
offered in an issue, if such Securities are debt securities rated in 
the fifth or sixth highest rating categories by at least one of the 
Rating Organizations; provided that none of the Rating Organizations 
rates such Securities in a category lower than the sixth highest rating 
category; and
    (4) The assets of any single Client Plan (and the assets of any 
Client Plans and any In-House Plans investing in

[[Page 6598]]

Pooled Funds) may not be used to purchase any Securities being offered, 
if such Securities are debt securities rated lower than the sixth 
highest rating category by any of the Rating Organizations;
    (5) Notwithstanding the percentage of Securities of an issue 
permitted to be acquired, as set forth in Section II(c)(1), (2), and 
(3), above, of this exemption, the amount of Securities in any issue 
(whether equity or debt securities) purchased, pursuant to this 
exemption, by the asset management affiliate of BS on behalf of any 
single Client Plan, either individually or through investment, 
calculated on a pro-rata basis, in a Pooled Fund may not exceed three 
percent (3%) of the total amount of such Securities being offered in 
such issue, and;
    (6) If purchased in an Eligible Rule 144A Offering, the total 
amount of the Securities being offered for purposes of determining the 
percentages, described, above, in Section II(c)(1)-(3) and (5), is the 
total of:
    (i) The principal amount of the offering of such class of 
Securities sold by underwriters or members of the selling syndicate to 
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A 
(17 CFR 230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class of 
Securities in any concurrent public offering.
    (d) The aggregate amount to be paid by any single Client Plan in 
purchasing any Securities which are the subject of this exemption, 
including any amounts paid by any Client Plan or In-House Plan in 
purchasing such Securities through a Pooled Fund, calculated on a pro-
rata basis, does not exceed three percent (3%) of the fair market value 
of the net assets of such Client Plan or In-House Plan, as of the last 
day of the most recent fiscal quarter of such Client Plan or In-House 
Plan prior to such transaction.
    (e) The covered transactions are not part of an agreement, 
arrangement, or understanding designed to benefit the asset management 
affiliate of BS or an affiliate.
    (f) The Affiliated Broker-Dealer does not receive, either directly, 
indirectly, or through designation, any selling concession, or other 
compensation or consideration that is based upon the amount of 
Securities purchased by any single Client Plan, or that is based on the 
amount of Securities purchased by Client Plans or In-House Plans 
through Pooled Funds, pursuant to this exemption. In this regard, the 
Affiliated Broker-Dealer may not receive, either directly or 
indirectly, any compensation or consideration that is attributable to 
the fixed designations generated by purchases of the Securities by the 
asset management affiliate of BS on behalf of any single Client Plan or 
any Client Plan or In-House Plan in Pooled Funds.
    (g)(1) The amount the Affiliated Broker-Dealer receives in 
management, underwriting, or other compensation or consideration is not 
increased through an agreement, arrangement, or understanding for the 
purpose of compensating the Affiliated Broker-Dealer for foregoing any 
selling concessions for those Securities sold pursuant to this 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the asset management affiliate of BS on behalf 
of any single Client Plan, or on behalf of any Client Plan or In-House 
Plan participating in Pooled Funds, pursuant to this exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the asset 
management affiliate of BS a written certification, signed by an 
officer of the Affiliated Broker-Dealer, stating the amount that the 
Affiliated Broker-Dealer received in compensation or consideration 
during the past quarter, in connection with any offerings covered by 
this exemption, was not adjusted in a manner inconsistent with Section 
II(e), (f), or (g) of this exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined, below, in 
Section III(g).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described, above, in Section 
II(h), the following information and materials (which may be provided 
electronically) must be provided by the asset management affiliate of 
BS to such Independent Fiduciary:
    (1) A copy of the Notice of Proposed Exemption (the Notice) and a 
copy of the final exemption as published in the Federal Register; and
    (2) Any other reasonably available information regarding the 
covered transactions that such Independent Fiduciary requests the asset 
management affiliate of BS to provide.
    (j) Subsequent to the initial authorization by an Independent 
Fiduciary of a single Client Plan permitting the asset management 
affiliate of BS to engage in the covered transactions on behalf of such 
single Client Plan, the asset management affiliate of BS will continue 
to be subject to the requirement to provide within a reasonable period 
of time any reasonably available information regarding the covered 
transactions that the Independent Fiduciary requests the asset 
management affiliate of BS to provide.
    (k)(1) In the case of an existing employee benefit plan investor 
(or existing In-House Plan investor, as the case may be) in a Pooled 
Fund, such Pooled Fund may not engage in any covered transactions 
pursuant to this exemption, unless the asset management affiliate of BS 
provides the written information, as described, below, and within the 
time period described, below, in this Section II(k)(2), to the 
Independent Fiduciary of each such plan participating in such Pooled 
Fund (and to the fiduciary of each such In-House Plan participating in 
such Pooled Fund).
    (2) The following information and materials (which may be provided 
electronically) shall be provided by the asset management affiliate of 
BS not less than 45 days prior to such asset management affiliate of BS 
engaging in the covered transactions on behalf of a Pooled Fund, 
pursuant to this exemption:
    (i) A notice of the intent of such Pooled Fund to purchase 
Securities pursuant to this exemption, a copy of this Notice, and a 
copy of the final exemption, as published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary of a plan (or 
fiduciary of an In-House Plan) participating in a Pooled Fund requests 
the asset management affiliate of BS to provide; and
    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of a plan (or fiduciary of an In-House Plan) 
participating in a Pooled Fund to terminate such plan's (or In-House 
Plan's) investment in such Pooled Fund without penalty to such plan (or 
In-House Plan). Such form shall include instructions specifying how to 
use the form. Specifically, the instructions will explain that such 
plan (or such In-House Plan) has an opportunity to withdraw its assets 
from a Pooled Fund for a period of no more than 30 days after such 
plan's (or such In-House

[[Page 6599]]

Plan's) receipt of the initial notice of intent, described, above, in 
Section II(k)(2)(i), and that the failure of the Independent Fiduciary 
of such plan (or fiduciary of such In-House Plan) to return the 
termination form to the asset management affiliate of BS in the case of 
a plan (or In-House Plan) participating in a Pooled Fund by the 
specified date shall be deemed to be an approval by such plan (or such 
In-House Plan) of its participation in the covered transactions as an 
investor in such Pooled Fund.
    Further, the instructions will identify BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer and will provide the 
address of the asset management affiliate of BS. The instructions will 
state that this exemption may be unavailable, unless the fiduciary of 
each plan participating in the covered transactions as an investor in a 
Pooled Fund is, in fact, independent of BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer. The instructions 
will also state that the fiduciary of each such plan must advise the 
asset management affiliate of BS, in writing, if it is not an 
``Independent Fiduciary,'' as that term is defined, below, in Section 
III(g).
    For purposes of this Section II(k), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this exemption for each plan be 
independent of the asset management affiliate of BS shall not apply in 
the case of an In-House Plan.
    (l)(1) In the case of each plan (and in the case of each In-House 
Plan) whose assets are proposed to be invested in a Pooled Fund after 
such Pooled Fund has satisfied the conditions set forth in this 
exemption to engage in the covered transactions, the investment by such 
plan (or by such In-House Plan) in the Pooled Fund is subject to the 
prior written authorization of an Independent Fiduciary representing 
such plan (or the prior written authorization by the fiduciary of such 
In-House Plan, as the case may be), following the receipt by such 
Independent Fiduciary of such plan (or by the fiduciary of such In-
House Plan, as the case may be) of the written information described, 
above, in Section II(k)(2)(i) and (ii).
    (2) For purposes of this Section II(l), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this exemption for each plan 
proposing to invest a Pooled Fund be independent of BS and its 
affiliates shall not apply in the case of an In-House Plan.
    (m) Subsequent to the initial authorization by an Independent 
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest 
in a Pooled Fund that engages in the covered transactions, the asset 
management affiliate of BS will continue to be subject to the 
requirement to provide within a reasonable period of time any 
reasonably available information regarding the covered transactions 
that the Independent Fiduciary of such plan (or the fiduciary of such 
In-House Plan, as the case may be) requests the asset management 
affiliate of BS to provide.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the asset 
management affiliate of BS shall furnish:
    (1) In the case of each single Client Plan that engages in the 
covered transactions, the information described, below, in this Section 
II(n)(3)-(7), to the Independent Fiduciary of each such single Client 
Plan.
    (2) In the case of each Pooled Fund in which a Client Plan (or in 
which an In-House Plan) invests, the information described, below, in 
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each 
such Client Plan (and to the fiduciary of each such In-House Plan) 
invested in such Pooled Fund.
    (3) A quarterly report (the Quarterly Report) (which may be 
provided electronically) which discloses all the Securities purchased 
pursuant to the exemption during the period to which such report 
relates on behalf of the Client Plan, In-House Plan, or Pooled Fund to 
which such report relates, and which discloses the terms of each of the 
transactions described in such report, including:
    (i) The type of Securities (including the rating of any Securities 
which are debt securities) involved in each transaction;
    (ii) The price at which the Securities were purchased in each 
transaction;
    (iii) The first day on which any sale was made during the offering 
of the Securities;
    (iv) The size of the issue of the Securities involved in each 
transaction;
    (v) The number of Securities purchased by the asset management 
affiliate of BS for the Client Plan, In-House Plan, or Pooled Fund to 
which the transaction relates;
    (vi) The identity of the underwriter from whom the Securities were 
purchased for each transaction;
    (vii) The underwriting spread in each transaction (i.e., the 
difference, between the price at which the underwriter purchases the 
securities from the issuer and the price at which the securities are 
sold to the public);
    (viii) The price at which any of the Securities purchased during 
the period to which such report relates were sold; and
    (ix) The market value at the end of the period to which such report 
relates of the Securities purchased during such period and not sold;
    (4) The Quarterly Report contains:
    (i) A representation that the asset management affiliate of BS has 
received a written certification signed by an officer of the Affiliated 
Broker-Dealer, as described, above, in Section II(g)(2), affirming 
that, as to each AUT covered by this exemption during the past quarter, 
the Affiliated Broker-Dealer acted in compliance with Section II(e), 
(f), and (g) of this exemption, and
    (ii) a representation that copies of such certifications will be 
provided upon request;
    (5) A disclosure in the Quarterly Report that states that any other 
reasonably available information regarding a covered transaction that 
an Independent Fiduciary (or fiduciary of an In-House Plan) requests 
will be provided, including, but not limited to:
    (i) The date on which the Securities were purchased on behalf of 
the Client Plan (or the In-House Plan) to which the disclosure relates 
(including Securities purchased by Pooled Funds in which such Client 
Plan (or such In-House Plan) invests;
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans (and the pro-rata percentage purchased on behalf of Client 
Plans and In-House Plans investing in Pooled Funds); and
    (iii) The identity of all members of the underwriting syndicate;
    (6) The Quarterly Report discloses any instance during the past 
quarter where the asset management affiliate of BS was precluded for 
any period of time from selling Securities purchased under this 
exemption in that quarter because of its status as an affiliate of an 
Affiliated Broker-Dealer and the reason for this restriction;
    (7) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each single Client Plan 
that engages in the covered transactions that the authorization to 
engage in such covered transactions may be terminated, without penalty 
to such single Client Plan, within five (5) days after the date that 
the Independent Fiduciary of such single Client Plan informs the person 
identified in such notification that the authorization to engage in the 
covered transactions is terminated; and

[[Page 6600]]

    (8) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each Client Plan (and to 
the fiduciary of each In-House Plan) that engages in the covered 
transactions through a Pooled Fund that the investment in such Pooled 
Fund may be terminated, without penalty to such Client Plan (or such 
In-House Plan), within such time as may be necessary to effect the 
withdrawal in an orderly manner that is equitable to all withdrawing 
plans and to the non-withdrawing plans, after the date that that the 
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such 
notification that the investment in such Pooled Fund is terminated.
    (o) For purposes of engaging in covered transactions, each Client 
Plan (and each In-House Plan) shall have total net assets with a value 
of at least $50 million (the $50 Million Net Asset Requirement). For 
purposes of engaging in covered transactions involving an Eligible Rule 
144A Offering,\3\ each Client Plan (and each In-House Plan) shall have 
total net assets of at least $100 million in securities of issuers that 
are not affiliated with such Client Plan (or such In-House Plan, as the 
case may be) (the $100 Million Net Asset Requirement).
---------------------------------------------------------------------------

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

    For purposes of a Pooled Fund engaging in covered transactions, 
each Client Plan (and each In-House Plan) in such Pooled Fund shall 
have total net assets with a value of at least $50 million. 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets with 
a value of at least $50 million, the $50 Million Net Asset Requirement 
will be met, if 50 percent (50%) or more of the units of beneficial 
interest in such Pooled Fund are held by Client Plans (or by In-House 
Plans) each of which has total net assets with a value of at least $50 
million. For purposes of a Pooled Fund engaging in covered transactions 
involving an Eligible Rule 144A Offering, each Client Plan (and each 
In-House Plan) in such Pooled Fund shall have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or such In-House Plan, as the case may be). 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or In-House Plan, as the case may be), the $100 
Million Net Asset Requirement will be met if 50 percent (50%) or more 
of the units of beneficial interest in such Pooled Fund are held by 
Client Plans (or by In-House Plans) each of which have total net assets 
of at least $100 million in securities of issuers that are not 
affiliated with such Client Plan (or such In-House Plan, as the case 
may be), and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
    For purposes of the net asset requirements described, above, in 
this Section II(o), where a group of Client Plans is maintained by a 
single employer or controlled group of employers, as defined in section 
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the 
case of an Eligible Rule 144A Offering, the $100 Million Net Asset 
Requirement) may be met by aggregating the assets of such Client Plans, 
if the assets of such Client Plans are pooled for investment purposes 
in a single master trust.
    (p) The asset management affiliate of BS qualifies as a ``qualified 
professional asset manager'' (QPAM), as that term is defined under Part 
V(a) of PTE 84-14. Notwithstanding the fact that the asset management 
affiliate of BS satisfies the requirements, as set forth in Part V(a) 
of PTE 84-14, such asset management affiliate of BS must also have 
total client assets under its management and control in excess of $5 
billion, as of the last day of it most recent fiscal year and 
shareholders' or partners' equity in excess of $1 million. Furthermore, 
the requirement that the asset management affiliate of BS must have 
total client asset under its management and control in excess of $5 
billion, as of the last day of it most recent fiscal year and 
shareholders' or partners' equity in excess of $1 million, as set forth 
in this Section II(p), applies whether such asset management affiliate 
of BS, qualifies as a QPAM, pursuant to Part V(a)(1), (a)(2), (a)(3) or 
(a)(4) of PTE 84-14.
    (q) No more than 20 percent of the assets of a Pooled Fund, at the 
time of a covered transaction, are comprised of assets of In-House 
Plans for which BS, the asset management affiliate of BS, the 
Affiliated Broker-Dealer, or an affiliate exercises investment 
discretion.
    (r) The asset management affiliate of BS, and the Affiliated 
Broker-Dealer, as applicable, maintain, or cause to be maintained, for 
a period of six (6) years from the date of any covered transaction such 
records as are necessary to enable the persons, described, below, in 
Section II(s), to determine whether the conditions of this exemption 
have been met, except that--
    (1) No party in interest with respect to a plan which engages in 
the covered transactions, other than BS, the asset management affiliate 
of BS, and the Affiliated Broker-Dealer, as applicable, shall be 
subject to a civil penalty under section 502(i) of the Act or the taxes 
imposed by section 4975(a) and (b) of the Code, if such records are not 
maintained, or not available for examination, as required, below, by 
Section II(s); and
    (2) A prohibited transaction shall not be considered to have 
occurred if, due to circumstances beyond the control of the asset 
management affiliate of BS, or the Affiliated Broker-Dealer, as 
applicable, such records are lost or destroyed prior to the end of the 
six-year period.
    (s)(1) Except as provided, below, in Section II(s)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in Section II(r) are 
unconditionally available at their customary location for examination 
during normal business hours by --
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described, above, in Section II(s)(1)(ii)--
(iv) shall be authorized to examine trade secrets of the asset 
management affiliate of BS, or the Affiliated Broker-Dealer, or 
commercial or financial information which is privileged or 
confidential; and

[[Page 6601]]

    (3) Should the asset management affiliate of BS, or the Affiliated 
Broker-Dealer refuse to disclose information on the basis that such 
information is exempt from disclosure, pursuant to Section II(s)(2), 
above, the asset management affiliate of BS shall, by the close of the 
thirtieth (30th) day following the request, provide a written notice 
advising that person of the reasons for the refusal and that the 
Department may request such information.

Section III--Definitions

    (a) The term, ``the Applicants,'' means BS, BSAM, and BSC.
    (b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer 
affiliate, as ``affiliate'' is defined, below, in Section III(c), of 
the Applicants, as ``Applicants'' are defined, above, in Section 
III(a), that meets the requirements of this exemption. Such Affiliated 
Broker-Dealer may participate in an underwriting or selling syndicate 
as a manager or member. The term, ``manager,'' means any member of an 
underwriting or selling syndicate who, either alone or together with 
other members of the syndicate, is authorized to act on behalf of the 
members of the syndicate in connection with the sale and distribution 
of the Securities, as defined, below, in Section III(h), being offered 
or who receives compensation from the members of the syndicate for its 
services as a manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (e) The term, ``Client Plan(s),'' means an employee benefit plan(s) 
that is subject to the Act and/or the Code, and for which plan(s) an 
asset management affiliate of BS exercises discretionary authority or 
discretionary control respecting management or disposition of some or 
all of the assets of such plan(s), but excludes In-House Plans, as 
defined, below, in Section III(l).
    (f) The term, ``Pooled Fund(s),'' means a common or collective 
trust fund(s) or a pooled investment fund(s): (i) in which employee 
benefit plan(s) subject to the Act and/or Code invest, (ii) which is 
maintained by an asset management affiliate of BS, (as the term, 
``affiliate'' is defined, above, in Section III(c)), and (iii) for 
which such asset management affiliate of BS exercises discretionary 
authority or discretionary control respecting the management or 
disposition of the assets of such fund(s).
    (g)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a 
plan who is unrelated to, and independent of BS, the asset management 
affiliate of BS, and the Affiliated Broker-Dealer. For purposes of this 
exemption, a fiduciary of a plan will be deemed to be unrelated to, and 
independent of BS, the asset management affiliate of BS, and the 
Affiliated Broker-Dealer, if such fiduciary represents that neither 
such fiduciary, nor any individual responsible for the decision to 
authorize or terminate authorization for the transactions described, 
above, in Section I of this exemption, is an officer, director, or 
highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of BS, the asset management affiliate of BS, 
or the Affiliated Broker-Dealer, and represents that such fiduciary 
shall advise the asset management affiliate of BS within a reasonable 
period of time after any change in such facts occur.
    (2) Notwithstanding anything to the contrary in this Section 
III(g), a fiduciary of a plan is not independent:
    (i) If such fiduciary directly or indirectly controls, is 
controlled by, or is under common control with BS, the asset management 
affiliate of BS, or the Affiliated Broker-Dealer;
    (ii) If such fiduciary directly or indirectly receives any 
compensation or other consideration from BS, the asset management 
affiliate of BS, or the Affiliated Broker-Dealer for his or her own 
personal account in connection with any transaction described in this 
exemption;
    (iii) If any officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset 
management affiliate of BS responsible for the transactions described, 
above, in Section I of this exemption, is an officer, director, or 
highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the 
fiduciary responsible for the decision to authorize or terminate 
authorization for the transactions described, above, in Section I. 
However, if such individual is a director of the sponsor of the plan or 
of the responsible fiduciary, and if he or she abstains from 
participation in: (A) The choice of the plan's investment manager/
adviser; and (B) the decision to authorize or terminate authorization 
for transactions described, above, in Section I, then Section 
III(g)(2)(iii) shall not apply.
    (3) The term, ``officer,'' means a president, any vice president in 
charge of a principal business unit, division, or function (such as 
sales, administration, or finance), or any other officer who performs a 
policy-making function for BS or any affiliate thereof.
    (h) The term, ``Securities,'' shall have the same meaning as 
defined in section 2(36) of the Investment Company Act of 1940 (the 
1940 Act), as amended (15 U.S.C. 80a-2(36)(1996)). For purposes of this 
exemption, mortgage-backed or other asset-backed securities rated by 
one of the Rating Organizations, as defined, below, in Section III(k), 
will be treated as debt securities.
    (i) The term, ``Eligible Rule 144A Offering,'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270. 10f-3(a)(4)) 
under the 1940 Act.
    (j) The term, ``qualified institutional buyer,'' or the term, 
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17 
CFR 230.144A(a)(1)) under the 1933 Act.
    (k) The term, ``Rating Organizations,'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., FitchRatings, Inc., 
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service, 
Inc.; or any successors thereto.
    (l) The term, ``In-House Plan(s),'' means an employee benefit 
plan(s) that is subject to the Act and/or the Code, and that is 
sponsored by the Applicants, as defined, above, in Section III(a) for 
their own employees.
    The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application for exemption are true and complete and accurately describe 
all material terms of the transactions. In the case of continuing 
transactions, if any of the material facts or representations described 
in the applications change, the exemption will cease to apply as of the 
date of such change. In the event of any such change, an application 
for a new exemption must be made to the Department.

    Signed at Washington, DC, this 6th day of February, 2007.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
 [FR Doc. E7-2242 Filed 2-9-07; 8:45 am]

BILLING CODE 4510-29-P