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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Salomon Brothers Inc. [Notices] [10/06/1998]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Salomon Brothers Inc. [10/06/1998]

[PDF Version]

Volume 63, Number 193, Page 53703-53722

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10288, et al.]

 
Proposed Exemptions; Salomon Brothers Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (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. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Salomon Brothers Inc., Located in New York, New York

[Application No. D-10288]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
    A. 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 to any purchase or sale of securities, including options on 
securities, between certain affiliates of Salomon Brothers Inc. 
(Salomon Bros.) which are foreign broker-dealers or banks (the Foreign

[[Page 53704]]

Affiliates, as defined below) and employee benefit plans (the Plans) 
with respect to which the Foreign Affiliates are parties in interest, 
provided that the following conditions, and the General Conditions of 
Section II, are satisfied:
    (1) The Foreign Affiliate customarily purchases and sells 
securities for its own account in the ordinary course of its business 
as a broker-dealer or bank;
    (2) The terms of any transaction are at least as favorable to the 
Plan as those the Plan could obtain in a comparable arm's length 
transaction with an unrelated party; and
    (3) Neither the Foreign Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets, and the Foreign Affiliate is a party in interest or 
disqualified person with respect to the Plan assets involved in the 
transaction solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections.
    B. The restrictions of sections 406(a)(1)(A) through (D) and 
406(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 
(D) of the Code, shall not apply to any extension of credit to the 
Plans by the Foreign Affiliates to permit the settlement of securities 
transactions, regardless of whether they are effected on an agency or a 
principal basis, or in connection with the writing of options 
contracts, provided that the following conditions and the General 
Conditions of Section II, are satisfied:
    (1) The Foreign Affiliate is not a fiduciary with respect to the 
Plan assets involved in the transaction, unless no interest or other 
consideration is received by the Foreign Affiliate or an affiliate 
thereof, in connection with any extension of credit; and
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934 (the 1934 Act) and any rules or regulations 
thereunder, if the 1934 Act, rules, or regulations were applicable.
    C. 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 to the lending of securities to the Foreign Affiliates by the 
Plans, provided that the following conditions, and the General 
Conditions of Section II, are satisfied:
    (1) Neither the Foreign Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets;
    (2) The Plan receives from the Foreign Affiliate (by physical 
delivery, by book entry in a securities depository, wire transfer, or 
similar means) by the close of business on the day the loaned 
securities are delivered to the Foreign Affiliate, collateral 
consisting of cash, securities issued or guaranteed by the U.S. 
Government or its agencies or instrumentalities, irrevocable U.S. bank 
letters of credit issued by persons other than the Foreign Affiliate or 
an affiliate of the Foreign Affiliate, or any combination thereof. All 
collateral shall be in U.S. dollars, or dollar-denominated securities 
or bank letters of credit, and shall be held in the United States;
    (3) The collateral has, as of the close of business on the 
preceding business day, a market value equal to at least 100 percent of 
the then market value of the loaned securities (or, in the case of 
letters of credit, a stated amount equal to same);
    (4) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains terms at 
least as favorable to the Plan as those the Plan could obtain in a 
comparable arm's length transaction with an unrelated party;
    (5) In return for lending securities, the Plan either (a) receives 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than what the Plan would 
pay in a comparable arm's length transaction with an unrelated party;
    (6) The Plan receives at least the equivalent of all distributions 
on the borrowed securities made during the term of the loan, 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 applicable tax 
withholdings) <SUP>1</SUP> had it remained the record owner of such 
securities;
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    \1\ The Department notes the applicant's representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan may be subject to foreign tax withholdings and that the 
Foreign Affiliate will always put the Plan back in at least as good 
a position as it would have been in had it not loaned the 
securities.
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    (7) If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate delivers additional collateral, by the close of the 
Plan's business on the following business day, to bring the level of 
the collateral back to at least 100 percent. However, if the market 
value of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent;
    (8) Before entering into a Loan Agreement, the Foreign Affiliate 
furnishes to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change.
    (9) The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
shall deliver certificates for 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 (a) the customary delivery period for such 
securities, (b) five business days, or (c) the time negotiated for such 
delivery by the Plan and the Foreign Affiliate, whichever is least;
    (10) In the event that the loan is terminated and the Foreign 
Affiliate fails to return the borrowed securities, or the equivalent 
thereof, within the time described in paragraph 9, the Plan may 
purchase securities identical to the borrowed securities (or their 
equivalent

[[Page 53705]]

as described above) and may apply the collateral to the payment of the 
purchase price, any other obligations of the Foreign Affiliate under 
the Loan Agreement, and any expenses associated with the sale and/or 
purchase. The Foreign Affiliate is obligated to pay, under the terms of 
the Loan Agreement, and does pay, to the Plan the amount of any 
remaining obligations and expenses not covered by the collateral, plus 
interest at a reasonable rate. Notwithstanding the foregoing, the 
Foreign Affiliate may, in the event it fails to return borrowed 
securities as described above, replace non-cash collateral with an 
amount of cash not less than the then current market value of the 
collateral, provided that such replacement is approved by the 
independent Plan fiduciary; and
    (11) The independent Plan fiduciary maintains the situs of the Loan 
Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404(b)-1.
    If the Foreign Affiliate fails to comply with any condition of the 
exemption in the course of engaging in a securities lending 
transaction, the Plan fiduciary who caused the Plan to engage in such 
transaction shall not be deemed to have caused the Plan to engage in a 
transaction prohibited by section 406(a)(1)(A) through (D) of the Act 
solely by reason of the Foreign Affiliate's failure to comply with the 
conditions of the exemption.
Section II--General Conditions
    A. The Foreign Affiliate is a registered broker-dealer or bank 
subject to regulation by a governmental agency, as described in Section 
III.B, and is in compliance with all applicable rules and regulations 
thereof in connection with any transactions covered by this exemption;
    B. The Foreign Affiliate, in connection with any transactions 
covered by this exemption, is in compliance with the requirements of 
Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and 
Exchange Commission (S.E.C.) interpretations thereof, providing for 
foreign affiliates a limited exemption from U.S. broker-dealer 
registration requirements;
    C. Prior to any transaction, the Foreign Affiliate enters into a 
written agreement with the Plan in which the Foreign Affiliate consents 
to the jurisdiction of the courts of the United States for any civil 
action or proceeding brought in respect of the subject transactions;
    D. The Foreign Affiliate maintains, or causes to be maintained, 
within the United States for a period of six years from the date of any 
transaction such records as are necessary to enable the persons 
described in paragraph E to determine whether the conditions of the 
exemption have been met, except that --
    (1) a party in interest with respect to a Plan, other than the 
Foreign Affiliate, shall not 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 by paragraph E; and
    (2) a prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the Foreign Affiliate's control, such 
records are lost or destroyed prior to the end of the six year period;
    E. Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Foreign Affiliate makes the records 
referred to in paragraph (d) unconditionally available during normal 
business hours at their customary location to the following persons or 
a duly authorized representative thereof: (1) the Department, the 
Internal Revenue Service, or the S.E.C.; (2) any fiduciary of a Plan; 
(3) any contributing employer to a Plan; (4) any employee organization 
any of whose members are covered by a Plan; and (5) any participant or 
beneficiary of a Plan. However, none of the persons described in (2) 
through (5) of this subsection are authorized to examine the trade 
secrets of the Foreign Affiliate or commercial or financial information 
which is privileged or confidential.
Section III--Definitions
    A. The term ``affiliate'' of another person shall include: (1) any 
person directly or indirectly, through one or more intermediaries, 
controlling, controlled by, or under common control with such other 
person; (2) any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; and (3) any 
corporation or partnership of which such other person is an officer, 
director or partner. For purposes of this definition, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual;
    B. The term ``Foreign Affiliate'' shall mean an affiliate of 
Salomon Brothers Inc. that is subject to regulation as a broker-dealer 
or bank by (1) the Ontario Securities Commission and the Investment 
Dealers Association in Canada; (2) the Securities and Futures Authority 
in the United Kingdom; (3) the Deutsche Bundesbank and the Federal 
Banking Supervisory Authority, i.e., der Bundesaufsichtsamt fuer das 
Kreditwesen (the BAK) in Germany; or (4) the Ministry of Finance and 
the Tokyo Stock Exchange in Japan;
    C. The term ``security'' shall include equities, fixed income 
securities, options on equity and on fixed income securities, 
government obligations, and any other instrument that constitutes a 
security under U.S. securities laws. The term ``security'' does not 
include swap agreements or other notional principal contracts.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
as of June 7, 1996.

Summary of Facts and Representations

    1. Salomon Bros., a broker-dealer registered with the S.E.C., is a 
full-line investment services firm which is a member of the New York 
Stock Exchange and other principal securities exchanges in the United 
States and a member of the National Association of Securities Dealers. 
Salomon Bros. is one of the largest investment services firms in the 
United States. Salomon Inc., the parent corporation of Salomon Bros., 
had approximately $194.88 billion in assets and $4.86 billion in 
stockholders' equity, as of December 31, 1996.
    On November 28, 1997, Salomon Inc., merged with a wholly owned 
subsidiary of Travelers Group Inc. (Travelers). Travelers, a 
diversified financial services holding company, had approximately $387 
billion in assets and $21 billion in stockholders' equity at the time 
of the merger. Salomon Inc. was the surviving corporation of this 
merger and was renamed Salomon Smith Barney Holdings Inc. (Salomon 
Smith Barney). Immediately thereafter, Smith Barney Holdings Inc., 
another wholly owned subsidiary of Travelers, was merged into Salomon 
Smith Barney.
    Salomon Bros., which will be merged in the future with another 
Smith Barney affiliate of Travelers, has several foreign affiliates 
which are broker-dealers or banks. Those covered by the proposed 
exemption (i.e., the Foreign Affiliates), and their respective 
regulating entities, are as follows:
    (a) Salomon Bros. Canada Inc., located in Toronto, is subject to 
regulation in Canada by the Ontario Securities Commission, as well as 
the Investment Dealers Association, a self-regulatory organization.
    (b) Salomon Bros. U.K. Limited, Salomon Bros. U.K. Equity Limited, 
and Salomon Bros. International Limited, all located in London, are 
subject to

[[Page 53706]]

regulation in the United Kingdom by the Securities and Futures 
Authority.
    (c) Salomon Bros. AG, located in Frankfurt, is subject to 
regulation in Germany by the Deutsche Bundesbank and the 
Bundesaufsichtsamt fuer das Kreditwesen (i.e., the BAK).
    (d) Salomon Bros. Asia Limited branch, located in Tokyo, is subject 
to regulation in Japan by the Ministry of Finance and the Tokyo Stock 
Exchange.
    Salomon Bros. requests an individual exemption to permit the 
Foreign Affiliates identified above, as well as those others who, in 
the future, may be subject to governmental regulation in Canada, the 
United Kingdom, Germany, or Japan, to engage in the securities 
transactions described below with employee benefit plans (i.e., the 
Plans). The proposed exemption is necessary because the Foreign 
Affiliates may be parties in interest with respect to the Plans under 
the Act, by virtue of being a fiduciary (for assets of the Plans other 
than those involved in the transactions) or a service provider to such 
Plans, or by virtue of a relationship to such fiduciary or service 
provider.
    2. Salomon Bros. represents that the Foreign Affiliates are subject 
to regulation by a governmental agency in the foreign country. Salomon 
Bros. further represents that registration of a foreign broker-dealer 
or bank with the governmental agency in these cases addresses 
regulatory concerns similar to those concerns addressed by registration 
of a broker-dealer with the S.E.C. under the 1934 Act. The rules and 
regulations set forth by the above-referenced agencies and the S.E.C. 
share a common objective: the protection of the investor by the 
regulation of securities markets.
    Canada, the United Kingdom, and Japan all have comprehensive 
financial resource and reporting/disclosure rules concerning broker-
dealers. Broker-dealers are required to demonstrate their capital 
adequacy. The reporting/disclosure rules impose requirements on broker-
dealers with respect to risk management, internal controls, and records 
relating to counterparties. All such records must be produced at the 
request of the agency at any time. The agencies' registration 
requirements for broker-dealers are enforced by fines and penalties and 
thus constitute a comprehensive disciplinary system for the violation 
of such rules.
    With respect to Germany, the BAK, an independent federal 
institution with ultimate responsibility to the Ministry of Finance, in 
cooperation with the Deutsche Bundesbank, the central bank of the 
German banking system, provides extensive regulation of the banking 
sector. The BAK insures that Salomon Bros. AG has procedures for 
monitoring and controlling its worldwide activities through various 
statutory and regulatory standards, such as requirements regarding 
adequate internal controls, oversight, administration and financial 
resources. The BAK reviews compliance with these limitations on 
operations and internal control requirements through an annual audit 
performed by the year-end auditor and through special audits, e.g., on 
specific sections of the Banking Act, as ordered by the BAK and the 
respective State Central Bank auditors. The BAK obtains information on 
the condition of Salomon Bros. AG, and its branches in Tokyo and Milan, 
by requiring submission of periodic, consolidated financial reports and 
through a mandatory annual report prepared by the auditor. The BAK also 
receives information regarding capital adequacy, country risk exposure, 
and foreign exchange exposure from Salomon Bros. AG. German banking law 
mandates penalties to insure correct reporting to the BAK. The auditors 
face penalties for gross violation of their duties in auditing, for 
reporting misleading information, omitting essential information from 
the audit report, failing to request pertinent information, or failing 
to report to the BAK.
    Salomon Bros. represents that, in connection with the transactions 
covered by this proposed exemption, the Foreign Affiliates' compliance 
with any applicable requirements of Rule 15a-6 (17 CFR 240.15a-6) of 
the 1934 Act (as discussed further in Paragraph 6, below), and S.E.C. 
interpretations thereof, providing for foreign affiliates a limited 
exemption from U.S. registration requirements, will offer additional 
protections to the Plans.

Principal Transactions

    3. Salomon Bros. represents that the Foreign Affiliates operate as 
traders in dealers' markets wherein they customarily purchase and sell 
securities for their own account in the ordinary course of their 
business as broker-dealers or banks and engage in purchases and sales 
of securities, including options on securities, with their clients. 
Such trades are referred to as principal transactions. Salomon Bros. 
represents that the role of a broker-dealer in a principal transaction 
in the subject foreign countries is virtually identical to that of a 
broker-dealer in a principal transaction in the United States.
    Salomon Bros. requests an individual exemption to permit the 
Foreign Affiliates to engage in principal transactions with the Plans 
under terms and conditions equivalent to those required in Prohibited 
Transaction Class Exemption 75-1 (PTCE 75-1, 40 FR 50845, October 31, 
1975), Part II.<SUP>2</SUP> Salomon Bros. states that because PTCE 75-1 
provides an exemption only for U.S. registered broker-dealers and U.S. 
banks, the principal transactions at issue would fall outside the scope 
of relief provided by PTCE 75-1.<SUP>3</SUP>
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    \2\ The Department notes that the proposed principal 
transactions are subject to the general fiduciary responsibility 
provisions of Part 4 of Title I in the Act. Section 404(a) of the 
Act requires, among other things, that a fiduciary of a plan act 
prudently and solely in the interest of the plan and its 
participants and beneficiaries, when making investment decisions on 
behalf of the plan.
    \3\ PTCE 75-1, Part II, provides an exemption, under certain 
conditions, from section 406(a) of the Act and section 4975(c)(1)(A) 
through (D) of the Code, for principal transactions between employee 
benefit plans and U.S. registered broker-dealers or U.S. banks that 
are parties in interest with respect to such plans.
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    4. Salomon Bros. represents that like the U.S. dealer markets, 
international equity and debt markets, including the options markets, 
are no less dependent on a willingness of dealers to trade as 
principals. Over the past decade, Plans have increasingly invested in 
foreign equity and debt securities, including debt securities issued by 
foreign governments. Thus, Plans seeking to enter into such investments 
may wish to increase the number of trading partners available to them 
by trading with the Foreign Affiliates.
    5. Under the conditions of this proposed exemption, as in PTCE 75-
1, Part II, the Foreign Affiliate must customarily purchase and sell 
securities for its own account in the ordinary course of its business 
as a broker-dealer or bank. The terms of any principal transaction will 
be at least as favorable to the Plan as those the Plan could obtain in 
a comparable arm's length transaction with an unrelated party. Neither 
the Foreign Affiliate nor an affiliate thereof will have discretionary 
authority or control with respect to the investment of the Plan assets 
involved in the principal transaction, or render investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those 
assets. In addition, the Foreign Affiliate will be a party in interest 
or disqualified person with respect to the Plan assets involved in the 
principal transaction solely by reason of section 3(14)(B) of the Act 
or section 4975(e)(2)(B) of the Code (i.e., a service provider to the 
Plan), or by reason of a relationship to such a person as described in 
such sections.
    6. Salomon Bros. represents that Rule 15a-6 of the 1934 Act 
provides an exemption from U.S. registration

[[Page 53707]]

requirements for a foreign broker-dealer that induces or attempts to 
induce the purchase or sale of any security (including over-the-counter 
equity and debt options) by a ``U.S. institutional investor'' or a 
``U.S. major institutional investor,'' provided that the foreign 
broker-dealer, among other things, enters into these principal 
transactions through a U.S. registered broker or dealer intermediary.
    The term ``U.S. institutional investor,'' as defined in Rule 15a-
6(b)(7), includes an employee benefit plan within the meaning of the 
Act if:
    (a) The investment decision is made by a plan fiduciary, as defined 
in section 3(21) of the Act, which is either a bank, savings and loan 
association, insurance company or registered investment adviser, or
    (b) The employee benefit plan has total assets in excess of $5 
million, or
    (c) The employee benefit plan is a self-directed plan with 
investment decisions made solely by persons that are ``accredited 
investors,'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities Act of 1933, as amended.
    The term ``U.S. major institutional investor,'' as defined in Rule 
15a-6(b)(4), includes a U.S. institutional investor that has total 
assets in excess of $100 million. Salomon Bros. represents that the 
intermediation of the U.S. registered broker or dealer imposes upon the 
foreign broker-dealer the requirement that the securities transaction 
be effected in accordance with a number of U.S. securities laws and 
regulations applicable to U.S. registered broker-dealers.
    Salomon Bros. represents that under Rule 15a-6, a foreign broker-
dealer that induces or attempts to induce the purchase or sale of any 
security by a U.S. institutional or major institutional investor in 
accordance with Rule 15a-6 must, among other things:
    (a) Provide written consent to service of process for any civil 
action brought by or proceeding before the S.E.C. or a self-regulatory 
organization;
    (b) Provide the S.E.C. with any information or documents within its 
possession, custody or control, any testimony of foreign associated 
persons, and any assistance in taking the evidence of other persons, 
wherever located, that the S.E.C. requests and that relates to 
transactions effected pursuant to the Rule;
    (c) Rely on the U.S. registered broker or dealer through which the 
principal transactions with the U.S. institutional and major 
institutional investors are effected, among other things, for:
    (1) effecting the transactions, other than negotiating their terms;
    (2) issuing all required confirmations and statements;
    (3) as between the foreign broker-dealer and the U.S. registered 
broker or dealer, extending or arranging for the extension of any 
credit in connection with the transactions;
    (4) maintaining required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by 
Certain Exchange Members, Brokers and Dealers) of the 1934 Act; 
<SUP>4</SUP>
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    \4\ Salomon Bros. represents that all such requirements relating 
to record-keeping of principal transactions would be applicable to 
any Foreign Affiliate in a transaction that would be covered by this 
proposed exemption.
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    (5) receiving, delivering, and safeguarding funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or U.S. major institutional investor in compliance with Rule 
15c3-3 (Customer Protection--Reserves and Custody of Securities) of the 
1934 Act; and
    (6) Participating in all oral communications (e.g., telephone 
calls) between the foreign associated person and the U.S. institutional 
investor, other than a U.S. major institutional investor.

Extensions of Credit

    7. Salomon Bros. represents that a normal part of the execution of 
securities transactions by broker-dealers on behalf of clients, 
including employee benefit plans, is the extension of credit to clients 
so as to permit the settlement of transactions in the customary three-
day settlement period. Such extensions of credit are also customary in 
connection with the writing of option contracts.
    Salomon Bros. requests that the proposed exemption include relief 
for extensions of credit to the Plans by the Foreign Affiliates in the 
ordinary course of their purchases or sales of securities, regardless 
of whether they are effected on an agency or a principal basis, or in 
connection with the writing of options contracts. In this regard, an 
exemption for such extensions of credit is provided under PTCE 75-1, 
Part V, only for transactions between plans and U.S. registered broker-
dealers and U.S. banks.<SUP>5</SUP>
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    \5\ PTCE 75-1, Part V, provides an exemption, under certain 
conditions, from section 406 of the Act and section 4975(c)(1) of 
the Code, for extensions of credit, in connection with the purchase 
or sale of securities, between employee benefit plans and U.S. 
registered broker-dealers or U.S. banks that are parties in interest 
with respect to such plans.
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    8. Under the conditions of this proposed exemption, as in PTCE 75-
1, Part V, the Foreign Affiliate may not be a fiduciary with respect to 
the Plan assets involved in the transaction. However, an exception to 
such condition would be provided herein, as in PTCE 75-1, if no 
interest or other consideration is received by the Foreign Affiliate or 
an affiliate thereof, in connection with any such extension of credit. 
In addition, the extension of credit must be lawful under the 1934 Act 
and any rules or regulations thereunder, if the 1934 Act rules or 
regulations were applicable. If the 1934 Act would not be applicable, 
the extension of credit must still be lawful under applicable foreign 
law, in the country where the particular Foreign Affiliate is 
domiciled.

Securities Lending

    9. The Foreign Affiliates, acting as principals, actively engage in 
the borrowing and lending of securities, typically foreign securities, 
from various institutional investors, including employee benefit plans.
    Salomon Bros. requests an exemption for securities lending 
transactions between the Foreign Affiliates and the Plans under terms 
and conditions equivalent to those required in Prohibited Transaction 
Class Exemption 81-6 (PTCE 81-6, 46 FR 7527, January 23, 1981, as 
amended at 52 FR 18754, May 19, 1987).<SUP>6</SUP> Because PTCE 81-6 
provides an exemption only for U.S. registered broker-dealers and U.S. 
banks, the securities lending transactions at issue would fall outside 
the scope of relief provided by PTCE 81-6.
---------------------------------------------------------------------------

    \6\ PTCE 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 
U.S. registered broker-dealers and U.S. banks that are parties in 
interest with respect to such plans.
---------------------------------------------------------------------------

    10. The Foreign Affiliates utilize borrowed securities either to 
satisfy their own trading requirements or to re-lend to other broker-
dealers and entities which need a particular security for a certain 
period of time. As described in the Federal Reserve Board's Regulation 
T, borrowed securities are often used to meet delivery obligations in 
the case of short sales or the failure to receive securities that a 
broker-dealer is required to deliver. Salomon Bros. represents that 
foreign broker-dealers are those broker-dealers most likely to seek to 
borrow foreign securities. Thus, the requested exemption will increase 
the lending demand for such securities, providing the Plans with 
increased securities lending opportunities, which will earn such Plans 
additional rates of

[[Page 53708]]

return on the borrowed securities (as discussed below).
    11. An institutional investor, such as a pension fund, lends 
securities in its portfolio to a broker-dealer or bank in order to earn 
a fee while continuing to enjoy the benefits of owning the securities, 
(e.g., from the receipt of any interest, dividends, or other 
distributions due on those securities and from any appreciation in the 
value of the securities). The lender generally requires that the 
securities loan be fully collateralized, and the collateral usually is 
in the form of cash, irrevocable bank letters of credit, or high 
quality liquid securities, such as U.S. Government or Federal Agency 
obligations.
    12. With respect to the subject securities lending transactions, 
neither the Foreign Affiliate nor an affiliate of the Foreign Affiliate 
will have discretionary authority or control with respect to the 
investment of the Plan assets involved in the transaction, or render 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to those assets.
    13. By the close of business on the day the loaned securities are 
delivered, the Plan will receive from the Foreign Affiliate (by 
physical delivery, book entry in a securities depository, wire 
transfer, or similar means) collateral consisting of cash, securities 
issued or guaranteed by the U.S. Government or its agencies or 
instrumentalities, irrevocable U.S. bank letters of credit issued by 
persons other than the Foreign Affiliate or an affiliate of the Foreign 
Affiliate, or any combination thereof. All collateral will be in U.S. 
dollars, or dollar-denominated securities or bank letters of credit, 
and will be held in the United States. The collateral will have, as of 
the close of business on the business day preceding the day it is 
posted by the Foreign Affiliate, a market value equal to at least 100 
percent of the then market value of the loaned securities (or, in the 
case of letters of credit, a stated amount equal to same).
    14. The loan will be made pursuant to a written Loan Agreement, 
which may be in the form of a master agreement covering a series of 
securities lending transactions between the Plan and the Foreign 
Affiliate. The terms of the Loan Agreement will be at least as 
favorable to the Plan as those the Plan could obtain in a comparable 
arm's length transaction with an unrelated party. The Loan Agreement 
will also contain a requirement that the Foreign Affiliate pay all 
transfer fees and transfer taxes relating to the securities loans.
    15. In return for lending securities, the Plan will either (a) 
receive a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) have the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than what the Plan would 
pay in a comparable arm's length transaction with an unrelated party.
    Earnings generated by non-cash collateral will be returned to the 
Foreign Affiliate. The Plan will be entitled to at least the equivalent 
of all distributions on the borrowed securities made during the term of 
the loan. Such distributions will include 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 any applicable tax withholdings) had it remained the record owner of 
such securities.
    16. If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate will deliver additional collateral, by the close of 
the Plan's business on the following business day, to bring the level 
of the collateral back to at least 100 percent. However, if the market 
value of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent.
    17. Before entering into a Loan Agreement, the Foreign Affiliate 
will furnish to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change.
    18. The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
will deliver certificates for 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 (a) the customary delivery period for such 
securities, (b) five business days, or (c) the time negotiated for such 
delivery by the Plan and the Foreign Affiliate, whichever is least. In 
the event that the Foreign Affiliate fails to return the securities, or 
the equivalent thereof, within the designated time, the Plan will have 
certain rights under the Loan Agreement to realize upon the collateral. 
The Plan may purchase securities identical to the borrowed securities, 
or the equivalent thereof, and may apply the collateral to the payment 
of the purchase price, any other obligations of the Foreign Affiliate 
under the Loan Agreement, and any expenses associated with replacing 
the borrowed securities. The Foreign Affiliate is obligated to pay to 
the Plan the amount of any remaining obligations and expenses not 
covered by the collateral, plus interest at a reasonable rate as 
determined in accordance with an independent market source. 
Notwithstanding the foregoing, the Foreign Affiliate may, in the event 
it fails to return borrowed securities as described above, replace non-
cash collateral with an amount of cash not less than the then current 
market value of the collateral, provided that such replacement is 
approved by the independent Plan fiduciary.
    19. The independent Plan fiduciary will maintain the situs of the 
Loan Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act <SUP>7</SUP> and the regulations 
promulgated under 29 CFR 2550.404(b)-1.
---------------------------------------------------------------------------

    \7\ Section 404(b) of the Act states that no fiduciary may 
maintain the indicia of ownership of any assets of a plan outside 
the jurisdiction of the district courts of the United States, except 
as authorized by regulation by the Secretary of Labor.
---------------------------------------------------------------------------

    20. In summary, the applicant represents that the subject 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) With respect to the principal transactions effected by the 
Foreign Affiliates, the proposed exemption will enable the Plans to 
realize the same benefits of efficiency and convenience which such 
Plans could derive from principal transactions with U.S. registered 
broker-dealers or U.S. banks, pursuant to PTCE 75-1, Part II;
    (b) With respect to extensions of credit in connection with 
purchases or sales of securities, the proposed exemption will enable 
the Foreign Affiliates and the Plans to extend credit in the ordinary 
course of the Foreign

[[Page 53709]]

Affiliate's business to effect agency or principal transactions within 
the customary three-day settlement period, or in connection with the 
writing of option contracts, for transactions between plans and U.S. 
registered broker-dealers or U.S. banks, pursuant to PTCE 75-1, Part V;
    (c) With respect to securities lending transactions effected by the 
Foreign Affiliates, the proposed exemption will enable the Plans to 
realize a low-risk return on securities that otherwise would remain 
idle, as in securities lending transactions between plans and U.S. 
registered broker-dealers or U.S. banks, pursuant to PTCE 81-6; and
    (d) The proposed exemption will provide the Plans with virtually 
the same protections as those provided by PTCE 75-1 and PTCE 81-6.

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

Citizens Bank New Hampshire Located in Manchester, New Hampshire

[Application No. D-10352]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Exemption for In-Kind Transfers of CIF Assets
    If this exemption is granted, the restrictions of sections 406(a) 
and 406(b) of ERISA 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, effective October 11, 1996, to the 
past in-kind transfer of assets of employee benefit plans (the Client 
Plans) for which Citizens Bank New Hampshire (the Bank) serves as 
fiduciary, other than plans established and maintained by the Bank, 
that are held in a portfolio of a collective investment fund maintained 
by the Bank (the CIF), in exchange for shares of the Berger/BIAM 
International Institutional Fund (the B/B Fund), an open-end investment 
company registered under the Investment Company Act of 1940 (the 1940 
Act), the investment adviser and investment sub-adviser of which are 
BBOI Worldwide LLC (BBOI) and Bank of Ireland Asset Management Limited 
(BIAM), respectively, which are related to the Bank; provided the 
following conditions and the general conditions of Section III below 
are met:
    (A) No sales commissions or other fees were paid by the Client 
Plans in connection with the purchase of B/B Fund shares through the 
in-kind transfer of CIF assets and no redemption fees are paid in 
connection with the sale of such shares by the Client Plans to the B/B 
Fund;
    (B) Each Client Plan received shares of the B/B Fund which had a 
total net asset value that is equal to the value of the Client Plans' 
pro rata share of the assets of the CIF on the date of the transfer, as 
determined in a single valuation performed in the same manner at the 
close of the same business day, using an independent source in 
accordance with Rule 17a-7(b) issued by the Securities and Exchange 
Commission under the 1940 Act and the procedures established by the B/B 
Fund pursuant to Rule 17a-7(b) for the valuation of such assets. Such 
procedures must require that all securities for which a current market 
price cannot be obtained by reference to the last sale price for 
transactions reported on a recognized securities exchange or NASDAQ be 
valued based on the current market value of the assets of the CIF, as 
objectively determined by an independent principal pricing service (the 
Principal Pricing Service).
    (C) A second fiduciary who is independent of and unrelated to the 
Bank (the Second Fiduciary) received advance written notice of the in-
kind transfer of assets of the CIF and full written disclosure of 
information concerning the B/B Fund and, on the basis of such 
information, authorized in writing the in-kind transfer of the Client 
Plan's CIF assets to the B/B Fund in exchange for shares of the B/B 
Fund. The full written disclosure referred to in this paragraph (C) of 
Section I included the following information:
    (1) A current prospectus for the B/B Fund;
    (2) A description of the fees for investment advisory or similar 
services that are to be paid (directly or indirectly) by the B/B Fund 
to BBOI and BIAM, the fees paid to the Bank for Secondary Services, as 
defined in Section IV below, and all other fees to be charged to or 
paid by the Client Plan and the B/B Fund directly or indirectly to 
BBOI, BIAM, the Bank, or unrelated third parties, including the nature 
and extent of any differential between the rates of the fees;
    (3) The reasons for the Bank's determination that the Client Plan's 
investment in the B/B Fund is appropriate;
    (4) A statement describing whether there are any limitations 
applicable to the Bank with respect to which assets of the Client Plan 
may be invested in the B/B Fund and, if so, the nature of such 
limitations;
    (D) On the basis of the information described in paragraph (C) of 
this Section III, the Second Fiduciary authorized in writing the 
investment of assets of the Client Plans in shares of the Fund and the 
fees received by the Advisers in connection with their services to the 
B/B Fund. Such authorization by the Second Fiduciary is consistent with 
the responsibilities, obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act;
    (D) The Bank sent by regular mail to the Second Fiduciary no later 
than 150 days after the completion of the transfer a written 
confirmation that contained the following information:
    (a) the identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (b) the price of each such security involved in the transaction;
    (c) the identity of the pricing service consulted in determining 
the value of such securities;
    (d) the number of CIF units held by the Client Plan immediately 
before the transfer, the related per-unit value, and the total dollar 
amount of such CIF units; and
    (e) the numbers of shares in the B/B Fund that are held by the 
Client Plan following the transfer, the related per-share net asset 
value, and the total dollar amount of such shares.
    (E) The Bank did not and will not receive any fees payable pursuant 
to Rule 12b-1 under the 1940 Act in connection with the transactions.
    (F) On an ongoing basis, for the duration of a Client Plan's 
investment in the B/B Fund, the Bank provides the Second Fiduciary with 
the following information:
    (1) At least annually, a copy of an updated prospectus of the B/B 
Fund; and
    (2) Upon request, a report or statement containing a description of 
all fees paid to the Bank, BBOI, BIAM, and their affiliates by the B/B 
Fund and the Berger/BIAM International Portfolio, the master fund with 
respect to the B/B Fund pursuant to a ``master/feeder'' structure.
    (G) Neither the Bank nor the Advisers nor any affiliate thereof, 
including any officer or director thereof, purchases shares of the B/B 
Fund from any of the Client Plans for its own account or sells shares 
of the B/B Fund to any of the Client Plans from its own account.

[[Page 53710]]

    (H) The requirements of Section II of this exemption are met with 
respect to all arrangements under which investment advisory fees are 
paid by Client Plans to the Bank and any other party in interest with 
respect to the Client Plans in connection with Client Plan assets 
invested in the B/B Fund.
Section II--Exemption for Receipt of Fees from Funds
    The restrictions of section 406(a) of the Act and section 406(b) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(D) through (F) of the 
Code, shall not apply, effective October 11, 1996, to the receipt of 
fees from the B/B Fund and/or the B/B Portfolio by the Bank, BBOI 
Worldwide LLC (BBOI) and Bank of Ireland Asset Management (U.S.) 
Limited (BIAM; collectively, the Advisers) for acting as the investment 
adviser, subadviser, custodian, subadministrator, or provider of other 
services which are not investment advisory services (Secondary 
Services) for the B/B Fund in connection with the investment in the B/B 
Fund by employee benefit plans (the Client Plans) for which the Bank 
acts as a fiduciary, provided the following conditions and the general 
conditions of Section III below are met:
    (A) No sales commissions are paid by the Client Plans in connection 
with purchases or sales of shares of the B/B Fund and no redemption 
fees are paid in connection with the sale of such shares by the Client 
Plans to the B/B Fund;
    (B) The price paid or received by the Client Plans for shares in 
the B/B Fund is the net asset value per share, as defined in paragraph 
(E) of Section IV, at the time of the transaction and is the same price 
which would have been paid or received for the shares by any other 
investor at that time;
    (C) Neither the Advisers nor the Bank nor an affiliate thereof, 
including any officer or director thereof, purchases from or sells to 
any of the Client Plans shares of the B/B Fund or the B/B Portfolio;
    (D) As to each individual Plan, the combined total of all fees 
received by the Advisers for the provision of services to the Plan, and 
in connection with the provision of services to the B/B Fund and the B/
B Portfolio with respect to the Plan's investment in the B/B Fund, is 
not in excess of ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act;
    (E) The Advisers do not receive any fees payable pursuant to Rule 
12b-1 under the 1940 Act in connection with the transactions;
    (F) The Client Plans are not sponsored by the Advisers;
    (G) A Second Fiduciary who is acting on behalf of each Plan and who 
is independent of and unrelated to the Advisers, as defined in 
paragraph (H) of Section IV below, receives in advance of the 
investment by the Plan in the B/B Fund a full and detailed written 
disclosure of information concerning the B/B Fund (including, but not 
limited to, a current prospectus for the B/B Fund in which such Plan's 
assets will be invested and a statement describing the fee structure 
and, upon request by the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, once such documents 
become available);
    (H) On the basis of the information described in paragraph (G) of 
this Section II, the Second Fiduciary authorizes in writing the 
investment of assets of the Client Plans in shares of the Fund and the 
fees received by the Advisers in connection with their services to the 
B/B Fund. Such authorization by the Second Fiduciary will be consistent 
with the responsibilities, obligations, and duties imposed on 
fiduciaries by Part 4 of Title I of the Act;
    (I) The authorization described in paragraph (H) of this Section II 
is terminable at will by the Second Fiduciary of a Plan, without 
penalty to such Plan. Such termination will be effected within one 
business day following receipt by the Bank, either by mail, hand 
delivery, facsimile, or other available means at the option of the 
Second Fiduciary, of written notice of termination; provided that if, 
due to circumstances beyond the control of the Bank, the sale cannot be 
executed within one business day, the Bank shall have one additional 
business day to complete such redemption;
    (J) Client Plans do not pay any Plan-level investment management 
fees, investment advisory fees, or similar fees to the Bank with 
respect to any of the assets of such Client Plans which are invested in 
shares of the B/B Fund. This condition does not preclude the payment of 
investment advisory fees or similar fees by the B/B Fund or the B/B 
Portfolio to the Advisers under the terms of an investment advisory 
agreement adopted in accordance with section 15 of the 1940 Act or 
other agreement between the Advisers and the B/B Fund or the B/B 
Portfolio;
    (K) In the event of an increase in the rate of any fees paid by the 
B/B Fund or the B/B Portfolio to any of the Advisers regarding any 
investment management services, investment advisory services, or fees 
for other services that any of the Advisers provide to the B/B Fund or 
the B/B Portfolio over an existing rate for such services that had been 
authorized by a Second Fiduciary, in accordance with paragraph (H) of 
this Section II, the Second Fiduciary is provided, at least 30 days in 
advance of the implementation of such increase, a written notice (which 
may take the form of a proxy statement, letter or similar communication 
that is separate from the prospectus of the B/B Fund and which explains 
the nature and amount of the increase in fees), and approves in writing 
the continued holding of B/B Fund shares acquired prior to such change 
(Such approval may be limited solely to the investment advisory and 
other fees paid by the BB/Fund in relation to the fees paid by the plan 
and need not relate to any other aspects of such investment);
    (L) With respect to the B/B Fund, the Bank will provide the Second 
Fiduciary of each Plan:
    (a) At least annually with a copy of an updated prospectus of the 
B/B Fund and the B/B Portfolio; and
    (b) Upon the request of such Second Fiduciary, with a report or 
statement (which may take the form of the most recent financial report, 
the current statement of additional information, or some other written 
statement) which contains a description of all fees paid by the B/B 
Fund and the B/B Portfolio to the Advisers;
    (M) All dealings between the Client Plans and the B/B Fund are on a 
basis no less favorable to such Client Plans than dealings between the 
Funds and other shareholders holding the same class of shares as the 
Client Plans.
Section III--General Conditions
    (A) The Bank maintains for a period of six years the records 
necessary to enable the persons described below in paragraph (B) to 
determine whether the conditions of this exemption have been met, 
except that (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Bank, the 
records are lost or destroyed prior to the end of the six-year period, 
and (2) no party in interest other than the Bank 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 by paragraph (B) below.
    (B)(1) Except as provided in paragraph (B)(2) and notwithstanding

[[Page 53711]]

any provisions of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (A) are unconditionally available at their 
customary location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of a Client Plan who has authority to acquire or 
dispose of shares of the B/B Fund owned by the Client Plan, or any duly 
authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of a Client Plan or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (B)(1)(ii) and (iii) 
shall be authorized to examine trade secrets of the Advisers, or 
commercial or financial information which is privileged or 
confidential.
Section IV--Definitions
    For purposes of this exemption:
    (A)(1) The term ``Bank'' means Citizens Bank New Hampshire;
    (2) The term ``BIAM'' means Bank of Ireland Asset Management;
    (3) The term ``BBOI'' means BBOI Worldwide LLC;
    (B) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (C) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (D)(1) The terms ``Fund'' and ``B/B Fund'' mean the Berger/BIAM 
International Institutional Fund, an open-end investment company 
registered under the 1940 Act, one of a series of investment portfolios 
which are distinct investment vehicles referred to as ``feeder'' funds, 
with respect to which BBOI and BIAM may provide Secondary Services.
    (2) The terms ``Portfolio'' and ``B/B Portfolio'' mean the Berger/
BIAM International Portfolio, an open-end investment company registered 
under the 1940 Act, the master fund with respect to the B/B Fund 
pursuant to a ``master/feeder'' arrangement, with respect to which BBOI 
and BIAM serve as investment adviser and investment sub-adviser, 
respectively.
    (E) The term ``net asset value'' means the amount for purposes of 
pricing all purchases, sales and redemptions of shares of the Berger/
BIAM International Institutional Fund (the B/B Fund) calculated by 
dividing the total value of such Fund's assets, determined by a method 
set forth in the B/B Fund's prospectus and statement of additional 
information, less the liabilities chargeable to the B/B Fund, by the 
number of outstanding shares.
    (F) The term ``Principal Pricing Service'' means an independent, 
recognized pricing service that has determined the aggregate dollar 
value of marketable securities involved in the transfer of CIF assets.
    (G) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or sister.
    (H) The term ``Second Fiduciary'' means a fiduciary of a Plan who 
is independent of and unrelated to the Bank, BIAM and BBOI. For 
purposes of this exemption, the Second Fiduciary will not be deemed to 
be independent of and unrelated to the Bank, BIAM and BBOI if:
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with the Bank, BIAM or BBOI;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary, is an officer, 
director, partner or employee of the Bank, BIAM or BBOI (or is a 
relative of such persons); or
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this proposed 
exemption.

If an officer, director, partner or employee of the Bank, BIAM or BBOI 
(or relative of such persons) is a director of such Second Fiduciary, 
and if he or she abstains from participation in the choice of a Plan's 
investment adviser, the approval of any such purchase or sale between a 
Plan and the B/B Fund, the approval of any change of fees charged to or 
paid by the Plan, the B/B Fund or the B/B Portfolio, and the 
transactions described in Sections I and II above, then paragraph 
(H)(2) of this section shall not apply.
    (I) The term ``Secondary Service'' means a service, other than 
investment advisory or similar service, which is provided by the Bank, 
BIAM or BBOI to the B/B Fund.

EFFECTIVE DATE: This exemption, if granted, will be effective as of 
October 11, 1996.

Summary of Facts and Representations

    1. The Bank, formerly named First NH Bank and the successor by 
merger to First NH Investment Services Corp., is a New Hampshire 
guaranty savings bank with its principal offices in Manchester, New 
Hampshire. The Bank is wholly owned by Citizens Financial Group, Inc., 
which is 23\1/2\ percent owned by the Bank of Ireland (BI), a publicly 
traded, diversified financial services group managing assets in excess 
of $16 billion worldwide. The Bank represents that it serves a number 
of employee benefit plan clients (the Plans) in the capacity of 
trustee, investment adviser, and/or custodian. At least a portion of 
the assets of the Plans are invested in the NH Pooled Employee Benefit 
Trust (the CIF), a collective investment fund organized as a group 
trust pursuant to Internal Revenue Service Revenue Ruling 81-100 (1981-
1 C.B. 326) established and trusteed by the Bank. One of the investment 
portfolios of the CIF is the First International Equity Fund (the FIEF 
Portfolio), which is the subject of this proposed exemption. As of 
August 31, 1996, the Bank had approximately $6 million of Plans assets 
under management in the FIEF Portfolio. The Bank is the investment 
adviser of the FIEF Portfolio, and the sub-adviser is Bank of Ireland 
Asset Management (U.S.) Limited (BIAM), which is a second-tier 
subsidiary of BI.
    2. The Bank represents that in some cases it has full or joint 
investment discretion over the assets of a Plan, and in other cases the 
Plan's participants direct the Bank as to which portfolios in the CIF 
their accounts are to be invested in. With respect to some Plans for 
which the Bank holds investment discretion, the Bank has chosen to 
invest a portion of such Plans' assets in the FIEF Portfolio. With 
respect to Plans providing for participant-directed investment of 
individual accounts, some participants in the Plans have chosen to 
direct the Bank to invest a portion of their accounts in the FIEF 
Portfolio. The Bank states that in either case it is more than merely a 
nondiscretionary fiduciary of the Plan since it has responsibility for 
the management of the Plan's assets that are invested in the FIEF 
Portfolio (hereinafter, Plans with assets invested in the FIEF 
Portfolio are referred to as Client Plans). As investment sub-adviser 
to the FIEF

[[Page 53712]]

Portfolio, BIAM is also a fiduciary with respect to Client Plans.
    3. The B/B Fund is the Berger/BIAM International Institutional 
Fund, a no-load, open-end management investment company organized as a 
diversified series of a trust known as the Berger/BIAM Worldwide Funds 
Trust. The B/B Fund invests all of its assets which are available for 
investment in the Berger/BIAM International Portfolio (the B/B 
Portfolio) as part of a so-called ``master-feeder'' structure, under 
which the B/B Portfolio is the master fund and the B/B Fund is the 
feeder fund. The B/B Portfolio is an open-end management investment 
company organized as a diversified series of a trust known as the 
Berger/BIAM Worldwide Portfolios Trust. The investment adviser of the 
B/B Portfolio is BBOI Worldwide LLC, which is 50 percent owned by a 
wholly-owned subsidiary of BI. The investment sub-adviser of the B/B 
Portfolio is Bank of Ireland Asset Management (BIAM), a wholly-owned 
subsidiary of BI.<SUP>8</SUP>
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    \8\ The Bank represents that a master-feeder structure is a two-
tiered fund structure in which all the assets of two or more feeder 
funds are invested in a single master fund, which has an identical 
investment objective and identical policies and limitations as the 
investing feeder funds. Shares of the feeder funds are offered to 
investors in the target market for which the feeder fund and its fee 
structure are designed (for example, the retail market or the 
institutional market). Interests in the master fund are sold only to 
feeder funds. Feeder funds may be mutual funds, bank collective 
trusts or common trusts, or other types of investing entities. 
Advisory services are rendered at the master level, while 
shareholder services and administrative services are rendered 
largely at the feeder level. In this regard, the Bank represents 
that the fees paid at the master fund and feeder fund levels are 
paid for separate, specific services provided to the respective 
fund, and that any such payment does not result in the double 
payment of fee for the same service by any shareholder. The Bank 
represents that the master-feeder structure is aimed at achieving 
economies of scale and lower overall expense ratios not generally 
achievable in a traditional, single-tier structure.
---------------------------------------------------------------------------

    4. The Bank represents that it determined in 1996 to convert the 
FIEF Portfolio into shares of the B/B Fund. In this regard, on October 
11, 1996, the Bank accomplished this conversion by means of the in-kind 
transfer of Client Plans' assets to the B/B Fund in exchange for the 
Client Plans' receipt of shares of the B/B Fund. The Bank represents 
that it determined to cause the Client Plans to transfer securities to 
the B/B Fund, rather than cash, in order to avoid the additional costs 
and risks to the Client Plans of disposing of and reacquiring 
securities through the open securities markets. For this past in-kind 
transfer of Client Plans' assets to the B/B Fund in exchange for shares 
of the B/B Fund, the Bank is requesting an exemption under the terms 
and conditions described herein.
    5. The Bank represents that the Client Plans consist of pension and 
profit-sharing plans, including plans with cash or deferred 
arrangements under section 401(k) of the Internal Revenue Code of 1986, 
as amended (the Code), and that some of the Client Plans are 
participant-directed individual account plans. The Bank states that as 
a custodian or participant-directed trustee of a plan, it has custody 
of the plan's assets and is responsible for collecting all income, 
performing bookkeeping and accounting, generating periodic statements 
of account activity and other reports, and making payments or 
distributions from the plan as directed. When serving as a custodian or 
directed trustee, the Bank represents that it has no investment 
discretion over the assets involved and no duty to review investments 
or make investment recommendations, acting only as directed by plan 
participants. However, some participants in such plans have directed 
the Bank to invest at least a portion of their accounts in the FIEF 
Portfolio. With respect to these Client Plans, the Bank is a fiduciary 
with investment discretion over plan assets to the extent the Bank is 
investment adviser of the FIEF Portfolio. With respect to plans for 
which the Bank serves as a discretionary trustee or investment manager, 
the Bank represents that it generally invests the assets of such plans 
in the CIF, and within the CIF, the Bank invests some of the assets of 
such plans in the FIEF Portfolio.
    6. The Bank represents that it determined that it would be in the 
best interests and protective of the participants and beneficiaries of 
the Client Plans to convert such Plans' interests in the FIEF Portfolio 
entirely to shares of the B/B Fund for the following reasons:
    (a) As an open-end investment management company, the B/B Fund's 
registration with the SEC requires greater participant disclosure than 
that required by bank regulators and provides an enhanced mechanism for 
review of disclosure documentation;
    (b) Sponsors and directing participants of Client Plans will be 
able to monitor more easily the performance of their investment since 
it is anticipated that information concerning the investment 
performance of the B/B Fund will be available in daily newspapers of 
general circulation, upon the achievement of certain size requirements;
    (c) The B/B Fund will be valued on a daily basis, whereas the FIEF 
Portfolio has been valued only monthly. The daily valuation permits (i) 
immediate investment of Plan contributions in the B/B Fund, (ii) 
greater flexibility in transferring assets from the B/B Fund to another 
type of investment, and (iii) daily redemption of investments in the B/
B Fund for purposes of making distributions; and
    (d) Unlike investments in the FIEF Portfolio, shares of the B/B 
Fund can be given directly to plan participants in benefit 
distributions, thus avoiding the expense and delay of liquidating plan 
investments and facilitating rollovers into individual retirement 
accounts.
    7. The Bank represents that the securities held in the FIEF 
Portfolio on behalf of the Client Plans were transferred to the B/B 
Fund in kind in order to preserve the values of the Client Plans' 
interests in the FIEF Portfolio and to avoid potentially large 
transaction costs and market risks that would be incurred by the Client 
Plans in a total liquidation of the securities and by the B/B Fund in 
reacquisition of the securities in the open market. The Bank states 
that the conversion of the FIEF Portfolio occurred as follows: After 
receipt of the appropriate approvals, discussed below, the Bank 
transferred the FIEF Portfolio assets to the B/B Fund, pursuant to an 
asset transfer procedure discussed below, and, in exchange, the B/B 
Fund transferred to the FIEF Portfolio an appropriate number of shares 
of the B/B Fund. The Bank represents that these B/B Fund shares had an 
aggregate value equal to the aggregate value of the assets of the FIEF 
Portfolio that were transferred. After the transfer, the Bank dissolved 
the FIEF Portfolio and distributed the newly-acquired B/B Fund shares 
pro rata to the Client Plans.
    8. Prior to the conversion of the FIEF Portfolio into shares of the 
B/B Fund, the Bank obtained the affirmative written approval of an 
independent second fiduciary of each Invested Plan (the Second 
Fiduciary), who generally was the Plan's named fiduciary, trustee 
(other than the Bank), or sponsoring employer. The Bank provided each 
Second Fiduciary with a prospectus for the B/B Fund and a written 
statement giving full disclosure of the information required under 
Prohibited Transaction Class Exemption 77-4 (PTE 77-4, 42 FR 18732, 
April 8, 1977), including an explanation of why the Bank believed that 
the investment of a portion of the assets of the Plan in the B/B Fund 
was appropriate. On the basis of such information, the proposed 
conversion of the Plan's investment in the FIEF Portfolio to investment 
in the B/B Fund

[[Page 53713]]

was submitted for approval by the Second Fiduciary.
    9. Asset transfer procedure: After the Second Fiduciary of each 
Invested Plan approved the Invested Plan's participation in the 
conversion of the FIEF Portfolio to shares in the B/B Fund, the asset 
transfer procedure began. The transfer occurred on October 11, 1996, 
and the following steps constituted the procedure utilized by the Bank 
in effecting the conversion:
    (A) Shortly prior to the transfer, the assets of the FIEF Portfolio 
were reviewed to determine whether they were appropriate investments 
for the B/B Fund, consistent with the B/B Fund's investment objective 
and policies and the applicable requirements under the Investment 
Company Act of 1940 (the 1940 Act) and the Code. Assets that were not 
appropriate investments for the B/B Fund were liquidated prior to the 
transfer date in the open market, without the involvement of any broker 
affiliated with the Bank.
    (B) For purposes of the transfer, the values of the FIEF Portfolio 
assets were determined on the basis of market values as of the close of 
business on the day of the transfer. Values were determined in a single 
valuation using the valuation procedures described in Rule 17a-7(b) 
under the Investment Company Act (17 CFR Sec. 270.17a-7(b)), as such 
rule has been interpreted by the Securities and Exchange Commission. 
Specifically, the securities in the FIEF Portfolio were valued as 
follows:
    (1) The securities valued were ones for which market quotations are 
readily available.
    (2) The values of the securities were the ``independent current 
market prices'' of the securities, as required by Rule 17a-7(b), as of 
close of business on the day of the transfer, which was a Friday. The 
Bank states that Rule 17a-7(b) specifically defines ``current market 
price'' for different types of securities that were in the FIEF 
Portfolio:
    (a) If the security was a ``reported security'' as defined in Rule 
11Aa3-1 under the Securities Exchange Act of 1934 (the 1934 Act), the 
last sale price with respect to such security reported in the 
consolidated transaction reporting system for that day, or the average 
of the highest independent bid and lowest independent offer for such 
security (reported pursuant to Rule 11Ac1-1 under the 1934 Act) as of 
the close of business on that day if there are no reported transactions 
in the consolidated system on that day; or
    (b) If the security was not a reported security, and the principal 
market for such security is an exchange, then the last sale on such 
exchange on that day or the average of the highest independent bid and 
lowest independent offer on such exchange as of the close of business 
on that day if there are no reported transactions on such exchange on 
that day; or
    (c) If the security is not a reported security and is quoted in the 
NASDAQ system, then the average of the highest independent bid and 
lowest independent offer reported on Level 1 of NASDAQ as of the close 
of business on that day; <SUP>9</SUP> or
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    \9\ The applicant represents that Level 1 of NASDAQ provides the 
best bid-and-ask quotations for each NASDAQ security that has a 
minimum of two registered market makers providing quotations. Level 
2 provides the current bid-and-ask prices for each market maker in 
any available NASDAQ security, not only the best prices. Level 3 
allows for market makers instantaneously to insert new quotations 
into the system, and is generally only used by market makers and 
traders.
---------------------------------------------------------------------------

    (d) For all other securities, the average of the highest 
independent bid and lowest independent offer, as of the close of 
business on the same day, determined on the basis of reasonable inquiry 
from at least three sources that are either broker-dealers or pricing 
services independent of the Bank.
    (C) After approval by the Second Fiduciaries of the transfer and 
conversion, the securities and cash in the FIEF Portfolio were 
transferred to the B/B Fund in exchange for shares of the B/B Fund. The 
FIEF Portfolio assets transferred to the B/B Fund were in turn 
transferred by the B/B Fund, as a feeder fund, to the B/B Portfolio 
master fund. The Bank represents that the in-kind purchase of B/B Fund 
shares was effected in accordance with the procedures described in the 
prospectus for the B/B Fund, which provide that the securities being 
transferred to the B/B Fund need to be eligible for purchase by the B/B 
Portfolio (consistent with the investment policies and restrictions of 
the B/B Fund and the B/B Portfolio) and must have a readily 
ascertainable market value.
    (D) The Bank represents that the securities received by the B/B 
Fund were valued by the B/B Fund for purposes of the transfer 
transaction in the same manner as the assets were valued by the FIEF 
Portfolio, and the per-share value of the B/B Fund shares issued were 
based on the B/B Fund's then-current net asset value. Accordingly, the 
Bank states that the value of a Plan's investment in the B/B Fund as of 
the start of business on the Monday following the Friday transfer was 
the same as the value of its investment in the FIEF Portfolio as of the 
close of business on the Friday of the transfer.
    No brokerage commission or other fee or expense was charged to the 
FIEF Portfolio or the B/B Fund in the transfer of assets from the FIEF 
Portfolio to the B/B Fund. The Bank represents that the transfer 
transactions were in fact ministerial actions, performed in accordance 
with prescribed, objective procedures. The Bank represents that the 
pricing of the securities transferred was accomplished by reference to 
independent sources, and the Client Plans, following the transfer 
transactions, hold B/B Fund shares of value equal to that of their 
former units in the FIEF Portfolio.
    10. Paragraph (D) of Section I of the exemption describes certain 
information which the Bank provided to the Second Fiduciary of each 
Client Plan no later than 150 days after the completion of the transfer 
transactions. The Bank represents, however, that prior to the Bank's 
provision of these detailed disclosures, each Second Fiduciary was 
notified shortly after the October 11, 1996 conversion that the 
transfer transactions had occurred, with a statement indicating the 
transaction, the account(s) affected, the date of the trade, the dollar 
amount of the transaction, the B/B Fund share price, and the total 
number of shares acquired. The Bank states that this confirmation 
notice was sent to the Client Plans at various times, depending on the 
particular plan's reporting cycle: Some of the Client Plans received 
the confirmation as early as seven to ten days after the end of October 
1996, some seven to ten days after the end of November 1996, and others 
seven to ten days after the end of December 1996.
    11. Fee arrangements: The Client Plans pay fees to the Bank in 
accordance with fee schedules negotiated with the Bank. The Bank 
represents that individual schedules vary depending on the particular 
arrangements between the Bank and the Plan fiduciary, the competitive 
forces in the market and the desires of the Plan sponsor. The Bank 
states that the annual charge for accounts for which Plan assets are 
invested in the CIF is based on a percentage of the aggregate market 
value of the Plan's assets. All fees are charged at least annually, and 
may be billed as frequently as monthly or quarterly.
    BBOI charges an investment advisory fee to the B/B Portfolio in 
accordance with an investment advisory agreement between the B/B 
Portfolio and BBOI. This fee is borne indirectly by the B/B Fund as a 
feeder fund in the master/feeder structure. BBOI in turn contracts with 
BIAM for investment sub-advisory

[[Page 53714]]

services.<SUP>10</SUP> BBOI has also entered into an administrative 
services agreement with the B/B Fund under which it is responsible for 
administering all aspects of the B/B Fund's day-to-day operations. 
Accordingly, BBOI is responsible for furnishing all administrative 
services reasonably necessary for the operation of the B/B Fund, 
including recordkeeping and pricing services, custodian services, 
transfer agency and dividend distribution services, tax and audit 
services, legal services, insurance, communications, and other 
administrative and recordkeeping services.
---------------------------------------------------------------------------

    \10\ The Bank represents that because BI, the parent corporation 
of BBOI and BIAM, has only a 23.3% ownership interest in the Bank, 
BBOI and BIAM do not appear to be ``affiliates'' of the Bank for 
purposes of Prohibited Transaction Exemption 77-4 (PTE 77-4, 42 FR 
18732, April 8, 1977) and, accordingly, the exemption provided by 
PTE 77-4 does not appear to be available with respect to fees paid 
by the B/B Fund to BBOI and BIAM. For this reason, the Bank has 
requested that the exemption proposed herein include exemptive 
relief for the payment of investment advisory fees, as well as fees 
for any Secondary Service, to BBOI and BIAM for such services to the 
B/B Fund, under conditions which are virtually identical to those 
contained in PTE 77-4.
---------------------------------------------------------------------------

    The Bank has entered into an administrative services agreement with 
the Berger/BIAM Worldwide Funds Trust and BBOI, as administrator of the 
B/B Fund, under which the Bank will perform various administrative 
services for the B/B Fund in return for a fee payable by BBOI. Those 
services will include providing necessary personnel and facilities to 
establish and maintain certain shareholder accounts and records; 
assisting in processing purchase and redemption requests from Client 
Plans or their participants; aggregating and processing purchase and 
redemption requests from Client Plans or their participants and placing 
net purchase and redemption orders with the B/B Fund's transfer agent; 
transmitting and receiving funds in connection with Plan orders to 
purchase or redeem shares; providing information periodically to Client 
Plans or their participants indicating their balance in shares of the 
B/B Fund, share prices, dividends paid, and/or dividend payment dates; 
responding to inquiries from the Plans or their participants relating 
to the B/B Fund, the services performed by the Bank, or the account 
balances of the Client Plans or their participants; providing 
subaccounting with respect to shares of the B/B Fund beneficially owned 
by Client Plans or their participants; forwarding shareholder 
communications from the B/B Fund (such as proxies, shareholder reports, 
annual and semi-annual financial statements and dividend and 
distributions notices) to Client Plans or their participants; and 
providing such other similar services as BBOI or the Berger/BIAM 
Worldwide Funds Trust may reasonably request, in accordance with 
applicable statutes, rules and regulations.
    The Bank states that it receives a bundled fee from the Plans for 
its administrative and investment management services to the Plans. The 
Bank represents that it has determined, and that the Second Fiduciary 
of each Invested Plan has agreed, that one-third of this bundled fee is 
attributable to the investment management services provided by the 
Bank. The Bank has amended it bundled fee arrangement so that with 
respect to the Plan assets invested in the B/B Fund shares, one-third 
of the bundled fee will not be charged. Accordingly, the Bank 
represents that pursuant to the requirements of PTE 77-4, the Bank will 
not receive any investment management fee for the portion of a Plan's 
assets that are invested in the B/B Fund.
    12. In summary, the Bank represents that the in-kind transfer 
transaction described herein satisfies the criteria of section 408(a) 
of the Act for the following reasons:
    (a) On behalf of each Client Plan a Second Fiduciary authorized in 
writing such in-kind transfer prior to the transaction and only after 
such Second Fiduciary received full written disclosure of information 
concerning the B/B Fund.
    (b) Each Client Plan received shares of the B/B Fund in connection 
with the in-kind transfer of assets from the FIEF Portfolio to the B/B 
Fund which were equal in value to the Plan's allocable share of assets 
that had been invested in the FIEF Portfolio on the date of the 
transfer as determined in a single valuation performed in the same 
manner and at the close of the business day, using independent sources 
in accordance with procedures established by the B/B Fund which 
complied with Rule 17a-7(b) of the 1940 Act, as amended, and the 
procedures established by the B/B Fund pursuant to Rule 17a-7 for the 
valuation of such assets.
    (c) Following the completion of the in-kind transfer transaction, 
the Bank provided the Second Fiduciary of each Client Plan with written 
confirmation containing (1) the identity of the security that was 
valued for purposes of the transaction in accordance with Rule 17a-
7(b)(4) of the 1940 Act, (2) the price of the security involved in the 
transaction; (3) the identity of the pricing service consulted in 
determining the value of such securities; (4) the number of FIEF 
Portfolio units held by the Plan immediately before the transfer, and 
the related per unit value and total dollar amount of such FIEF 
Portfolio units; and (5) the number of shares in the B/B Fund held by 
the Plan following the purchase and the liquidation of the FIEF 
Portfolio, and the related per share net asset value and total dollar 
amount of such shares.
    (d) As to each Invested Plan, no investment management fee is or 
will be paid to the Bank with respect to Plan assets invested in shares 
of the B/B Fund.
    (e) No sales commissions were paid by an Invested Plan in 
connection with the acquisition of shares in the B/B Fund.
    (f) With respect to investments in the B/B Fund by the Client 
Plans, each Second Fiduciary received full and detailed written 
disclosure of information concerning the B/B Fund, including a current 
prospectus and a statement describing the fee structure, and such 
Second Fiduciary authorized, in writing, the investment of the Plan's 
assets in the B/B Fund and the fees payable to the Bank; and
    (g) The Bank will provide ongoing disclosures to Second Fiduciaries 
of Client Plans to verify the fees charged to the Bank by the B/B Fund.

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

Barclays Bank PLC (Barclays) Located in London, England

[Application No. D-10486]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).<SUP>11</SUP>
---------------------------------------------------------------------------

    \11\ For purposes of this proposed exemption, reference to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions
    A. 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, effective July 31, 1997, to any purchase or sale of a 
security between Barclays or any affiliate of Barclays which is a bank 
or a broker-dealer subject to British law (the Foreign Affiliate), and 
employee

[[Page 53715]]

benefit plans (the Plans) with respect to which Barclays or the Foreign 
Affiliate is a party in interest, including options on securities 
written by the Plan, Barclays or the Foreign Affiliate, provided that 
the following conditions and the General Conditions of Section II, are 
satisfied:
    (1) Barclays or the Foreign Affiliate customarily purchases and 
sells securities for its own account in the ordinary course of its 
business as a broker-dealer.
    (2) The terms of any transaction are at least as favorable to the 
Plan as those which the Plan could obtain in a comparable arm's length 
transaction with an unrelated party.
    (3) Neither Barclays, the Foreign Affiliate, nor any of their 
affiliates thereof has discretionary authority or control with respect 
to the investment of the Plan assets involved in the transaction, or 
renders investment advice [within the meaning of 29 CFR 2510.3-21(c)] 
with respect to those assets, and Barclays or the Foreign Affiliate is 
a party in interest or disqualified person with respect to the Plan 
assets involved in the transaction solely by reason of section 3(14)(B) 
of the Act or section 4975(e)(2)(B) of the Code, or by reason of a 
relationship to a person described in such sections. For purposes of 
this paragraph, Barclays or the Foreign Affiliate shall not be deemed 
to be a fiduciary with respect to Plan assets solely by reason of 
providing securities custodial services for a Plan.
    B. The restrictions of sections 406(a)(1) (A) through (D) and 
406(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 (D) of the Code, shall not apply, effective July 31, 1997, to 
any extension of credit to a Plan by Barclays or the Foreign Affiliate 
to permit the settlement of securities transactions or in connection 
with the writing of options contracts or the purchase or sale of 
securities, provided that the following conditions and the General 
Conditions of Section II are satisfied:
    (1) Barclays or the Foreign Affiliate is not a fiduciary with 
respect to any Plan assets, unless no interest or other consideration 
is received by Barclays, the Foreign Affiliate, or any of their 
affiliates in connection with such extension of credit.
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934 (the 1934 Act) and any rules or regulations 
thereunder if such Act, rules or regulations were applicable and would 
be lawful under applicable foreign law.
    C. 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, effective July 31, 1997, to the lending of securities that 
are assets of a Plan to Barclays or the Foreign Affiliate, provided 
that the following conditions and the General Conditions of Section II 
are satisfied:
    (1) Neither Barclays, the Foreign Affiliate nor any of their 
affiliates thereof has discretionary authority or control with respect 
to the investment of Plan assets involved in the transaction, or 
renders investment advice [within the meaning of 29 CFR 2510.3-21(c)] 
with respect to those assets.
    (2) The Plan receives from Barclays or the Foreign Affiliate, 
either by physical delivery or by book entry in a securities depository 
located in the United States, by the close of business on the day on 
which the securities lent are delivered to Barclays or the Foreign 
Affiliate, collateral consisting of U.S. currency, securities issued or 
guaranteed by the United States Government or its agencies or 
instrumentalities, or irrevocable United States bank letters of credit 
issued by persons other than Barclays or the Foreign Affiliate (or any 
of their affiliates), or any combination thereof, having, as of the 
close of business on the preceding business day, a market value (or, in 
the case of letters of credit, a stated amount) equal to not less than 
100 percent of the then market value of the securities lent. (The 
collateral referred to in this Section I(c)(2) must be in U.S. dollars 
or dollar-denominated securities or United States bank letters of 
credit and must be held in the United States.)
    (3) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains terms at 
least as favorable to the Plan as those the Plan could obtain in an 
arm's length transaction with an unrelated party.
    (4) In return for lending securities, the Plan either (i) receives 
a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan, or (ii) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to Barclays 
or the Foreign Affiliate, if such fee is not greater than the Plan 
would pay an unrelated party in a comparable arm's length transaction 
with an unrelated party.
    (5) The Plan receives at least the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
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) <SUP>12</SUP> had it remained the record owner of such 
securities.
---------------------------------------------------------------------------

    \12\ The Department notes the applicant's representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan may be subject to foreign tax withholdings and that 
Barclays or the Foreign Affiliate will always put the Plan back in 
at least as good a position as it would have been in had it not lent 
the securities.
---------------------------------------------------------------------------

    (6) If the market value of the collateral on the close of trading 
on a business day falls below 100 percent of the market value of the 
borrowed securities at the close of trading on that day, Barclays or 
the Foreign Affiliate delivers additional collateral, by the close of 
business on the following business day, to bring the level of the 
collateral back to at least 100 percent of the market value of all the 
borrowed securities as of such preceding day. Notwithstanding the 
foregoing, part of the collateral may be returned to Barclays or the 
Foreign Affiliate if the market value of the collateral exceeds 100 
percent of the market value of the borrowed securities, as long as the 
market value of the remaining collateral equals at least 100 percent of 
the market value of the borrowed securities.
    (7) Prior to the making of any securities loan, Barclays or the 
Foreign Affiliate furnishes to the independent fiduciary for the Plan 
who is making decisions on behalf of the Plan with respect to the 
lending of securities: (i) the most recently available audited and 
unaudited statements of its financial condition; and (ii) a 
representation by Barclays or the Foreign Affiliate 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 financial statement that has not been disclosed to the Plan 
fiduciary.
    (8) The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon Barclays or the 
Foreign Affiliate delivers certificates for 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 (i) the customary delivery 
period for such securities; (ii) five business days; or (iii) the time 
negotiated for such

[[Page 53716]]

delivery by the Plan and Barclays (or the Plan and the Foreign 
Affiliate), whichever is lesser, or, alternatively such period as 
permitted by Prohibited Transaction Exemption (PTE) 81-6 (43 FR 7527, 
January 23, 1981) as it may be amended.
    (9) In the event that the loan is terminated and Barclays or the 
Foreign Affiliate fails to return the borrowed securities or the 
equivalent thereof within the time described in paragraph (8) above, 
then the Plan may purchase securities identical to the borrowed 
securities (or their equivalent as described above) and may apply the 
collateral to the payment of the purchase price, any other obligations 
of Barclays or the Foreign Affiliate under the Loan Agreement, and any 
expenses associated with the sale and/or purchase. Barclays or the 
Foreign Affiliate shall indemnify the Plan with respect to the 
difference, if any, between the replacement cost of the borrowed 
securities and the market value of the collateral on the date the loan 
is declared in default, together with expenses not covered by the 
collateral plus applicable interest at a reasonable rate.
    (10) The Plan maintains the situs of the Loan Agreement in 
accordance with the indicia of ownership requirements under section 
404(b) of the Act and the regulations promulgated under 29 CFR 
2550.404(b)-1. However, Barclays or the Foreign Affiliate shall not be 
subject to the civil penalty which 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 Plan fails to comply with the requirements of 29 CFR 
2550.404(b)-1.
    If Barclays or the Foreign Affiliate fails to comply with any 
condition of this exemption in the course of engaging in a securities 
lending transaction, the Plan fiduciary which caused the Plan to engage 
in such transaction shall not be deemed to have caused the Plan to 
engage in a transaction prohibited by section 406(a)(1)(A) through (D) 
of the Act solely by reason of the failure on the part of Barclays or 
the Foreign Affiliate to comply with the conditions of the exemption.
Section II. General Conditions
    (a) Barclays is subject to regulation by the Bank of England.
    (b) The Foreign Affiliate--
    (1) Is subject to regulation by the Bank of England, or
    (2) Is a registered broker-dealer subject to regulation by the 
Securities and Futures Authority of the United Kingdom (the UK SFA) and 
is in compliance with all applicable rules and regulations thereof.
    (c) Barclays and the Foreign Affiliate are in compliance with all 
requirements of Rule 15a-6 (17 CFR 240.15a-6), which provides foreign 
broker-dealers a limited exemption from U.S. broker-dealer registration 
requirements, and Securities and Exchange Commission (the SEC) 
interpretations and amendments thereof to Rule 15a-6 under the 1934 
Act, to the extent applicable.
    (d) Prior to the transaction, Barclays or the Foreign Affiliate 
enters into a written agreement with the Plan in which Barclays or the 
Foreign Affiliate consents to the jurisdiction of the courts of the 
United States for any civil action or proceeding brought in respect of 
the subject transactions.
    (e) Barclays or the Foreign Affiliate maintains, or causes to be 
maintained, within the United States for a period of six years from the 
date of such transaction such records as are necessary to enable the 
persons described in paragraph (f) of this Section II to determine 
whether the conditions of this exemption have been met except that--
    (1) A party in interest with respect to a Plan, other than Barclays 
or the Foreign Affiliate, shall not be subject to a civil penalty under 
section 502(i) of the Act or the taxes imposed by section 4975(a) or 
(b) of the Code, if such records are not maintained, or are not 
available for examination as required by paragraph (e) of this Section 
II; and
    (2) A prohibited transaction will not be deemed to have occurred 
if, due to circumstances beyond the control of Barclays or the Foreign 
Affiliate, such records are lost or destroyed prior to the end of such 
six year period.
    (f) Notwithstanding the provisions of subsections (a)(2) and (b) of 
section 504 of the Act, Barclays or the Foreign Affiliate makes the 
records referred to above in paragraph (e) of this Section II, 
unconditionally available for examination during normal business hours 
at their customary location to the following persons or an authorized 
representative thereof:
    (1) The Department, the Internal Revenue Service or the SEC;
    (2) Any fiduciary of a participating Plan;
    (3) Any contributing employer to a Plan;
    (4) Any employee organization any of whose members are covered by a 
Plan; and
    (5) Any participant or beneficiary of a Plan. However, none of the 
persons described above in paragraphs (f)(2)-(f)(5) of this Section II 
shall be authorized to examine trade secrets of Barclays or the Foreign 
Affiliate, or any commercial or financial information which is 
privileged or confidential.
    (g) Prior to any Plan's approval of any transaction with Barclays 
or the Foreign Affiliate, the Plan is provided copies of the proposed 
and final exemptions covering the exemptive relief described herein.
Section III. Definitions
    For purposes of this proposed exemption,
    (a) The term ``Barclays,'' means ``Barclays Bank PLC'' which is 
subject to regulation by the Bank of England.
    (b) The term ``Foreign Affiliate'' means any affiliate of Barclays 
which is subject to regulation by the Bank of England or the UK SFA.
    (c) The term ``affiliate'' of another person shall include:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner. (For purposes of this definition, the 
term ``control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.)
    (d) The term ``security'' includes equities, fixed income 
securities, options on equity and on fixed income securities, 
government obligations, and any other instrument that constitutes a 
security under U.S. securities laws. The term ``security'' does not 
include swap agreements or other notional principal contracts.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of July 31, 1997.

Summary of Facts and Representations

    1. Barclays, one of the largest full-line investment service firms 
in the world, is an authorized institution under the Banking Act of 
1987 of the United Kingdom and is regulated by the Bank of England. As 
of June 30, 1998, Barclays had approximately <brit-pound>249 billion 
($405.9 billion) in assets and <brit-pound>7.9 billion ($12.9 billion) 
in stockholder's equity.<SUP>13</SUP>
---------------------------------------------------------------------------

    \13\ A conversion ratio of $1.63 per British Pound Sterling was 
used to determine the applicable dollar amounts.
---------------------------------------------------------------------------

    2. Barclays Capital Securities Limited (BCSL) is a foreign broker-
dealer

[[Page 53717]]

affiliate of Barclays. Located in London, BCSL is subject to regulation 
in the United Kingdom by the UK SFA. As of December 31, 1997, BCSL had 
total assets of $36.5 billion.
    3. Barclays requests exemptive relief from the Department to permit 
it and any Foreign Affiliate that is subject to British law, to engage 
in (a) purchases and sales of securities and (b) extensions of credit 
in connection with such purchases and sales. Such transactions are 
currently being executed between a Plan and Barclays or a Plan and the 
Foreign Affiliate in transactions which generally meet the applicable 
requirements of PTE 75-1, Part II (involving Principal Transactions) 
and Part V (involving Extensions of Credit) (40 FR 50845, October 31, 
1975). However, unlike PTE 75-1, the parties in interest involved in 
the Principal Transactions that are described herein are not broker-
dealers registered under the 1934 Act, reporting dealers which make 
primary markets in securities of the United States Government and 
report daily to the Federal Reserve Bank its positions with respect to 
Government securities and borrowings thereon, or banks supervised by 
the United States or a State. Similarly, with respect to Extensions of 
Credit Transactions that are described herein, the parties in interest 
involved in this proposed exemption are not brokers or dealers 
registered under the 1934 Act.
    Further, Barclays requests exemptive relief with respect to the 
lending of securities that are assets of a Plan to it or to the Foreign 
Affiliate. While such transactions would generally meet the applicable 
requirements of PTE 81-6, as amended, supplemented or superseded, in 
the present case, again the parties in interest involved herein are not 
broker-dealers registered under the 1934 Act or exempted from 
registration under section 15(a)(1) of the 1934 Act as dealers in 
exempted Government securities, as defined in section 3(a)(12) of the 
1934 Act or U.S. banks.
    Finally, Barclays requests that the exemptive relief described 
above apply to its other Foreign Affiliates which, may in the future, 
be subject to similar regulation by the Bank of England or the UK SFA.
    If granted, the exemption will be effective as of July 31, 1997.
    4. Barclays represents that it is regulated by the Bank of England 
whose powers include licensing banks in the United Kingdom, issuing 
directives to address violations by or irregularities involving such 
banks, requiring information from a bank or its auditor regarding 
supervisory matters and revoking bank licenses. Barclays also states 
that the Bank of England ensures that it has procedures for monitoring 
and controlling its worldwide activities through various statutory and 
regulatory standards. Among these standards are requirements for 
adequate internal controls, oversight, administration and financial 
resources. Barclays further states that it is required to provide the 
Bank of England on a recurring basis with information regarding capital 
adequacy, country risk exposure and foreign exchange exposures as well 
as periodic, consolidated financial reports on the financial condition 
of Barclays and its affiliates.
    5. Barclays represents that although the Foreign Affiliate will not 
be registered with the SEC, its activities are governed by the rules, 
regulations and membership requirements of the UK SFA. In this regard, 
Barclays states that the Foreign Affiliate is subject to the UK SFA 
rules relating to, among other things, minimum capitalization, 
reporting requirements, periodic examinations, client money and safe 
custody rules, and books and records requirements with respect to 
client accounts. Barclays represents that the rules and regulations set 
forth by the UK SFA and the SEC share a common objective: the 
protection of the investor by the regulation of the securities 
industry. Barclays notes that the UK SFA rules require each firm which 
employs registered representatives or registered traders to have 
positive tangible net worth and to be able to meet its obligations as 
they may fall due, and that the UK SFA rules set forth comprehensive 
financial resource and reporting/disclosure rules regarding capital 
adequacy. In addition, to demonstrate capital adequacy, Barclays states 
that the UK SFA rules impose reporting/disclosure requirements on 
broker-dealers with respect to risk management, internal controls, and 
transaction reporting and recordkeeping requirements. In this regard, 
required records must be produced at the request of the UK SFA at any 
time. Barclays further states that the rules and regulations of the UK 
SFA for broker-dealers are backed up by potential fines and penalties 
as well as rules which establish a comprehensive disciplinary system.
    6. Barclays represents that in addition to the protections afforded 
by the Bank of England and the UK SFA, compliance by it and the Foreign 
Affiliate with the requirements of Rule 15a-6 (and the amendments and 
interpretations thereof) will offer further protections to 
Plans.<SUP>14</SUP> Rule 15a-6 provides an exemption from U.S. 
registration requirements for a foreign broker-dealer that induces or 
attempts to induce the purchase or sale of any security (including 
over-the-counter equity and debt options) by a ``U.S. institutional 
investor'' or a ``U.S. major institutional investor,'' provided that 
the foreign broker dealer, among other things, enters into these 
transactions through a U.S. registered broker-dealer intermediary. The 
term ``U.S. institutional investor,'' as defined in Rule 15a-6(b)(7), 
includes an employee benefit plan within the meaning of the Act if (a) 
the investment decision is made by a plan fiduciary, as defined in 
section 3(21) of the Act, which is either a bank, savings and loan 
association, insurance company or registered investment advisor, or (b) 
the employee benefit plan has total assets in excess of $5 million, or 
(c) the employee benefit plan is a self-directed plan with investment 
decisions made solely by persons that are ``accredited investors'' as 
defined in Rule 501(a)(1) of Regulation D of the Securities Exchange 
Act of 1933, as amended. The term ``U.S. major institutional investor'' 
is defined as a person that is a U.S. institutional investor that has 
total assets in excess of $100 million or accounts managed by an 
investment adviser registered under section 203 of the Investment 
Advisers Act of 1940 that has total assets under management in excess 
of $100 million.<SUP>15</SUP> Barclays represents that the 
intermediation of the U.S. registered broker-dealer imposes upon the 
foreign broker-dealer the requirement that the securities

[[Page 53718]]

transaction be effected in accordance with a number of U.S. securities 
laws and regulations applicable to U.S. registered broker-dealers.
---------------------------------------------------------------------------

    \14\ According to Barclays, section 3(a)(4) of the 1934 Act 
defines ``broker'' to mean ``any person engaged in the business of 
effecting transactions in securities for the account of others, but 
it does not include a bank.'' Section 3(a)(5) of the 1934 Act 
provides a similar exclusion for ``banks'' in the definition of the 
term ``dealer.'' However, section 3(a)(6) of the 1934 Act defines 
``bank'' to mean a banking institution organized under the laws of 
the United States or a State of the United States. Further, Rule 
15(a)(6)(b)(2) provides that the term ``foreign broker or dealer'' 
means ``any non-U.S. resident person * * * whose securities 
activities, if conducted in the United States, would be described by 
the definition of ``broker'' or ``dealer'' in sections 3(a)(4) or 
3(a)(5) of the [1934] Act.'' Therefore, the test of whether an 
entity is a ``foreign broker'' or ``dealer'' is based on the nature 
of such foreign entity's activities and, with certain exceptions, 
only banks that are regulated by either the United States or a State 
of the United States are excluded from the definition of the term 
``broker'' or ``dealer.'' Thus, for purposes of this exemption 
request, Barclays is willing to represent that it will comply with 
the applicable provisions and relevant SEC interpretations and 
amendments of Rule 15a-6.
    \15\ See SEC No-Action Letter issued to Cleary, Gottlieb, Steen 
& Hamilton on April 9, 1997, expanding the definition of ``Major 
U.S. Institutional Investor'' (the April 9, 1997 No-Action Letter).
---------------------------------------------------------------------------

    Barclays represents that under Rule 15a-6, a foreign broker-dealer 
that induces or attempts to induce the purchase or sale of any security 
by a U.S. institutional or major institutional investor in accordance 
with Rule 15a-6 <SUP>16</SUP> must, among other things:

    \16\ If it is determined that applicable regulation under the 
1934 Act does not require Barclays or the Foreign Affiliate to 
comply with Rule 15a-6, both entities will, nevertheless, comply 
with paragraphs (a) and (b) above.
---------------------------------------------------------------------------

    (a) Consent to service of process for any civil action brought 
by, or proceeding before, the SEC or any self-regulatory 
organization;
    (b) Provide the SEC with any information or documents within its 
possession, custody or control, any testimony of any such foreign 
associated persons, and any assistance in taking the evidence of 
other persons, wherever located, that the SEC requests and that 
relates to transactions effected pursuant to the Rule;
    (c) Rely on the U.S. registered broker-dealer through which the 
transactions with the U.S. institutional and major institutional 
investors are effected to (among other things):
    (1) Effect the transactions, other than negotiating their terms;
    (2) Issue all required confirmations and statements;
    (3) As between the foreign broker-dealer and the U.S. registered 
broker-dealer, extend or arrange for the extension of credit in 
connection with the transactions;
    (4) Maintain required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved 
by Certain Exchange Members, Brokers and Dealers) of the 1934 Act;
    (5) Receive, deliver, and safeguard funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or U.S. major institutional investor in compliance with 
Rule 15c3-3 of the 1934 Act (Customer Protection--Reserves and 
Custody of Securities); <SUP>17</SUP> and
---------------------------------------------------------------------------

    \17\ 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 Barclays or between a Plan and the Foreign Affiliate. Barclays 
notes that in such situations, the U.S. registered broker-dealer 
will not be acting as a principal with respect to any duties it is 
required to undertake pursuant to Rule 15a-6.
---------------------------------------------------------------------------

    (6) Participate in certain oral communications (e.g., telephone 
calls) between the foreign associated person and the U.S. 
institutional investor (not the U.S. major institutional investor), 
and accompany the foreign associated person on certain visits with 
both U.S. institutional and major institutional investors. Under 
certain circumstances, the foreign associated person may have direct 
communications and contact with the U.S. Institutional Investor. 
(See April 9, 1997 SEC No-Action Letter.)

    7. In addition to the protections cited above, Barclays represents 
that prior to a transaction described herein, it or the Foreign 
Affiliate will enter into a written agreement with the Plan whereby it 
or the Foreign Affiliate will consent to the jurisdiction of the courts 
of the United States for any civil action or proceeding brought in 
respect of such transaction. Further, Barclays or the Foreign Affiliate 
will maintain, or cause to be maintained, within the United States for 
a period of six years, from the date of a transaction such records as 
are necessary to enable the Department and others to determine whether 
the conditions of the exemption have been met.

Principal Transactions

    8. Barclays represents that both it and the Foreign Affiliate 
operate as traders in dealers' markets wherein they customarily 
purchase and sell securities for their own account in the ordinary 
course of their business and engage in purchases and sales of 
securities, including options on securities written by the Plan, 
Barclays or the Foreign Affiliate with their clients. Such trades are 
referred to as principal transactions. Barclays states that the role of 
a bank or a broker-dealer engaged in a principal transaction in the 
subject foreign countries is virtually identical to that of a bank or a 
broker-dealer engaged in a principal transaction in the United States. 
Therefore as noted above, Barclays requests an individual exemption, 
effective July 31, 1997, to permit it and Foreign Affiliate to engage 
in principal transactions with the Plans under the terms and conditions 
equivalent to those of Part II of PTE 75-1. As previously stated, 
because PTE 75-1 provides an exemption for U.S. registered broker-
dealers and U.S. banks, the principal transactions may fall outside the 
scope of relief provided therein.
    9. Barclays represents that like the U.S. dealer markets, 
international equity and debt markets, including the options markets, 
are no less dependent on a willingness of dealers to trade as 
principals. Over the past decade, Plans have increasingly invested in 
foreign equity and debt securities, including foreign government 
securities. Thus, Barclays notes that Plans seeking to enter into such 
investments may wish to increase the number of trading partners 
available to them by trading with it or the Foreign Affiliate.
    10. Barclays represents that the terms of any principal transaction 
will be at least as favorable to the Plan as those the Plan could 
obtain in a comparable arm' length transaction with an unrelated party. 
In addition, Barclays states that neither it, the Foreign Affiliate nor 
any of their affiliates thereof will have discretionary authority or 
control with respect to the investment of the Plan assets involved in 
the principal transaction or render investment advice [within the 
meaning of 29 CFR 2510.3-21(c)] with respect to those assets. Further, 
Barclays represents that it or the Foreign Affiliate will be a party in 
interest with respect to those Plan involved in a principal transaction 
by reason of providing services to a Plan under section 3(14) of the 
Act or by reason of a relationship to such service provider. However, 
Barclays maintains that it or the Foreign Affiliate will not be deemed 
to be a fiduciary with respect to Plan assets solely by reason of 
providing securities custodial services for a Plan.

Extensions of Credit

    11. Barclays represents that a normal part of the execution of 
securities transactions by broker-dealers on behalf of customers, 
including Plans, is the extension of credit to customers so as to 
permit the settlement of transactions in the customary settlement 
period. Such extensions of credit are customary in connection with the 
buying and writing of option contracts. Therefore, Barclays requests, 
effective July 31, 1997, exemptive relief for extensions of credit 
between it and a Plan or between the Foreign Affiliate and a Plan in 
the ordinary course of their purchases or sales of securities, 
regardless of whether they are effected on an agency or a principal 
basis. Although an exemption for such extensions of credit is provided 
under Part V of PTE 75-1 for U.S. registered broker-dealers, it is not 
available for Barclays or for the Foreign Affiliate which are or will 
be domiciled in the United Kingdom.
    12. As in PTE 75-1, Barclays or the Foreign Affiliate may not be a 
fiduciary with respect to Plan assets involved in the transaction 
unless no interest or other consideration is received by Barclays, the 
Foreign Affiliate or any of their affiliates thereof, in connection 
with any extension of credit. The extension of credit also must be 
lawful under applicable foreign law.

Securities Lending

    13. In addition to exemptive relief for principal transactions and 
extensions of credit in connection with the purchase or sale of 
securities, Barclays requests exemptive relief, effective July 31, 
1997, for the lending of securities, equivalent to that provided under 
the terms and conditions of PTE 81-6, a class exemption to permit 
certain loans of

[[Page 53719]]

securities by employee benefit plans. Under such circumstances, 
Barclays or the Foreign Affiliate, acting as principals, actively 
engage in the borrowing and lending of securities, typically foreign 
securities from institutions, including employee benefit plans. Because 
PTE 81-6 provides an exemption for U.S. registered broker-dealers and 
U.S. banks, the securities lending transactions at issue herein may, as 
briefly noted above, fall outside the scope of relief provided by PTE 
81-6.
    14. It is represented that Barclays and the Foreign Affiliate 
utilize borrowed securities to satisfy their own trading requirements 
or to re-lend to other affiliates and entities which need a particular 
security for a certain period of time. As described in the Federal 
Reserve Board's Regulation T, borrowed securities are often used to 
meet delivery obligations in the case of short sales or the failure to 
receive securities that Barclays or the Foreign Affiliate is required 
to deliver. Barclays also represents that foreign broker-dealers are 
the most likely entities that seek to borrow foreign securities. Thus, 
the exemption will increase the lending demand for such securities and 
provide the Plans with increased securities lending opportunities.
    15. It is represented that an institutional investor, such as a 
pension plan, lends securities in its portfolio to Barclays or the 
Foreign Affiliate in order to earn a fee while continuing to enjoy the 
benefits of owning securities (e.g., from the receipt of any interest, 
dividends or other distributions due on those securities and from any 
appreciation in the value of the securities). The lender generally 
requires that the securities loan be fully collateralized and the 
collateral usually is in the form of U.S. currency, irrevocable U.S. 
bank letters of credit issued by a bank other than Barclays, or high-
quality liquid securities such as U.S. Government or Federal Agency 
obligations. When cash is the collateral, the lender invests the cash 
and rebates a previously-agreed upon amount to Barclays or the Foreign 
Affiliate. The ``fee'' received by the lender as compensation for the 
loan of its securities then consists of the excess, if any, of the 
earnings on the collateral over the amount of the rebate. When the 
collateral consists of obligations other than cash, Barclays or the 
Foreign Affiliate pays a fee directly to the lender.
    16. Neither Barclays, the Foreign Affiliate nor any of their 
affiliates thereof will have discretionary authority or control with 
respect to the investment of Plan assets involved in the transaction or 
render investment advice, within the meaning of 29 CFR 2510.3-21(c) 
with respect to those assets.
    17. By the close of business on the day the loaned securities are 
delivered to Barclays or the Foreign Affiliate, the Plan will receive, 
from Barclays or the Foreign Affiliate, (by physical delivery, book 
entry in a U.S. securities depository, wire transfer or similar means) 
collateral consisting of U.S. currency, securities issued or guaranteed 
by the U.S. Government or its agencies, irrevocable U.S. bank letters 
of credit issued by persons other than Barclays, the Foreign Affiliate, 
or any of their affiliates, or any combination thereof, having, as of 
the close of trading on the preceding business day, a market value 
equal to at least 100 percent of the then market value of the loaned 
securities (or, in the case of letters of credit, a stated amount equal 
to same). All collateral posted by Barclays or the Foreign Affiliate 
will be in U.S. dollars or dollar-denominated securities or U.S. bank 
irrevocable letters of credit and will be held in the United States.
    18. The loan will be made pursuant to a written Loan Agreement 
which may be in the form of a master agreement covering a series of 
securities lending transactions. The terms of the Loan Agreement will 
be at least as favorable to the Plan as those the Plan could obtain in 
a comparable arm's length transaction with an unrelated party. The Loan 
Agreement will also contain a requirement that the Barclays or the 
Foreign Affiliate pay all transfer fees and transfer taxes relating to 
the securities loans.
    19. In return for lending securities, the Plan will either (a) 
receive a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan or (b) have the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to Barclays 
or the Foreign Affiliate if such fee is not greater than what the Plan 
would pay in a comparable arm's length transaction with an unrelated 
party.
    Under this fee arrangement, earnings generated by non-cash 
collateral will be returned to Barclays or the Foreign Affiliate. The 
Plan will be entitled to at least the equivalent of all distributions 
on the borrowed securities made during the term of the loan, 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) 
had it remained the record owner of such securities.
    20. If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, 
Barclays or the Foreign Affiliate will deliver additional collateral, 
by the close of business on the following business day, to bring the 
level of the collateral back to at least 100 percent. Notwithstanding 
the foregoing, part of the collateral may be returned to Barclays or 
the Foreign Affiliate if the market value of the collateral exceeds 100 
percent of the market value of the borrowed securities, as long as the 
market value of the remaining collateral equals at least 100 percent of 
the market value of the borrowed securities. Matters relating to the 
return of the collateral, the substitution of collateral or the 
termination of loans, will be determined by applicable provisions of 
the Loan Agreement.
    21. Before entering a Loan Agreement, Barclays or the Foreign 
Affiliate will furnish to the Plan the most recently available audited 
and unaudited statements of such entity's financial condition. In 
addition, Barclays or the Foreign Affiliate will represent that as of 
each time such entity borrows securities there has been no material 
change in the financial condition of such entity since the date of the 
most recently-furnished financial statement that has not been disclosed 
to the Plan.
    22. The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon Barclays or the 
Foreign Affiliate will deliver certificates for securities identical to 
the borrowed securities (or the equivalent thereof in the event of a 
reorganization, recapitalization or merger of the issuer of the 
borrowed securities) to the Plan within the time period specified by 
PTE 81-6 as it may be amended. In the event that Barclays or the 
Foreign Affiliate fails to return the borrowed securities, or the 
equivalent thereof, within the designated time, the Plan will have 
certain rights under the Loan Agreement to realize upon the collateral. 
The Plan may purchase securities identical to the borrowed securities, 
or the equivalent thereof, and may apply the collateral to the payment 
of the purchase price, any other obligations of Barclays or the Foreign 
Affiliate under the Loan Agreement and any expenses associated with 
replacing the borrowed securities. Barclays or the Foreign Affiliate 
will indemnify the Plan with respect to the difference, if any, between 
the

[[Page 53720]]

replacement cost of the borrowed securities and the market value of the 
collateral on the date the loan is declared in default, together with 
expenses not covered by the collateral plus applicable interest at a 
reasonable rate. If replacement securities are not available, Barclays 
or the Foreign Affiliate will pay the Plan an amount equal to (a) the 
value of the securities as of the date such securities should have been 
returned to the Plan plus (b) all the accrued financial benefits 
derived from the beneficial ownership of such loan securities as of 
such date, plus (c) interest from such date through the date of 
payment.
    23. The Plan will maintain the situs of the Loan Agreement in 
accordance with the indicia of ownership requirements of section 404(b) 
of the Act and the regulations promulgated under 29 CFR 2550.404(b)-1. 
However, Barclays or the Foreign Affiliate will not be subject to the 
civil penalty which 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 
Plan fails to comply with the requirements of 29 CFR 2550.404(b)-1.
    24. In summary, it is represented that the proposed transactions 
have satisfied and will satisfy the statutory criteria for an exemption 
under section 408(a) of the Act for the following reasons:
    (a) With respect to principal transactions effected by Barclays or 
the Foreign Affiliate, the exemption has enabled and will enable Plans 
to realize the same benefits of efficiency and convenience which derive 
from principal transactions executed pursuant to Part II of PTE 75-1 by 
U.S. registered broker-dealers and U.S. banks.
    (b) With respect to extensions of credit by Barclays and the 
Foreign Affiliate in connection with purchases or sales of securities, 
the exemption has enabled and will enable the Plans and Barclays or the 
Plans and the Foreign Affiliate to extend credit in the ordinary course 
of Barclays's or the Foreign Affiliate's business so as to effect the 
transactions within the customary settlement period or in connection 
with the buying and writing of options contracts or in connection with 
short sales, as permitted by Part V of PTE 75-1, for U.S. registered 
broker-dealers.
    (c) With respect to securities lending transactions effected by 
Barclays or the Foreign Affiliate, the exemption has enabled and will 
enable Plans to realize a low-risk return on securities that otherwise 
would remain idle, as in securities lending transactions executed 
pursuant to PTE 81-6 by U.S. registered broker-dealers and U.S. banks.
    (d) The proposed exemption will provide Plans with virtually the 
same protections and benefits as those provided by PTE 75-1 and PTE 81-
6.

Notice to Interested Persons

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

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

The Millcraft Industries Salaried Employees Pension Plan (the 
Salaried Plan) and The Millcraft Products, Inc. Hourly Employees 
Pension Plan and Trust Agreement (the Hourly Plan) (collectively, 
the Plans) Located in Canonsburg, PA

[Exemption Application Numbers D-10608 and D-10609]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and 4975(c)(2) of the Code and 
in accordance with the procedures set forth in 29 CFR Part 2570, 
Subpart B (55 FR 32836, August 10, 1990). If the exemption is granted, 
the restrictions of sections 406(a), 406(b)(1) and (b)(2) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply to three cash sales (the Sales) of certain shares of stock 
(the Stock) by the Plans to Millcraft Industries, Inc. (Millcraft 
Industries), a party in interest and disqualified person with respect 
to the Plans, provided the following conditions were met:
    (a) The terms of the Sales were at least as favorable to the Plans 
as those obtainable in an arm's length transaction with an unrelated 
party;
    (b) The Sales were one-time transactions for cash;
    (c) The Plans paid no commissions or expenses relating to the 
Sales; and
    (d) The Sales were for no less than the fair market value of the 
Stock as determined by a qualified, independent appraiser.
    Effective Date: If granted, the proposed exemption will be 
effective as of November 15, 1996.
Summary of Facts and Representations
    1. The applicant describes the Plans as follows:
    a. The Salaried Plan was originally established by Millcraft 
Industries on August 28, 1972 and has since been amended and restated 
effective November 1, 1989. At the time of the transactions, the 
Salaried Plan had 86 participants and held assets valued at 
approximately $1.8 million.
    b. The Hourly Plan was originally established by Millcraft 
Products, Inc. (Millcraft Products) on November 1, 1963 and has since 
been amended and restated effective November 1, 1989. At the time of 
the transactions, the Hourly Plan had 216 participants and held assets 
valued at approximately $1.95 million.
    At all times relevant to the transactions in question, Jack B. 
Piatt, Jack B. Piatt, II, Rodney L. Piatt, and Charles D. Boehm served 
as trustees (the Trustees) for the Plans, and Merrill Lynch, Pierce, 
Fenner & Smith, Incorporated (Merrill Lynch) served as broker for both 
Plans.
    2. Millcraft Industries, the sponsor and administrator of the 
Salaried Plan, is a Pennsylvania corporation located at 400 Southpointe 
Boulevard, Suite 400, Canonsburg, Pennsylvania. Millcraft Industries is 
a holding and management corporation engaged, through subsidiaries, in 
the manufacturing and marketing of specialized equipment for the steel-
making industry and the development of real estate.
    Millcraft Products, sponsor and administrator of the Hourly Plan, 
is a wholly-owned subsidiary of Millcraft Industries that is also 
located in Pennsylvania. Millcraft Products is a manufacturing, 
continuous caster repair, machinery, and fabricating company that 
provides parts, services, and equipment for the steel-making industry.
    3. Among the assets of the Plans are certain shares of Stock in the 
Community Bank, NA, (the Bank) a publicly traded corporation located in 
Pennsylvania. Except for approximately 3.3% of the outstanding Stock of 
the Bank held by the Plans and approximately 4.4% of the outstanding 
Stock of the Bank held by Millcraft Industries at the time of the 
transaction, the Bank was otherwise unrelated to Millcraft Industries, 
Millcraft Products and the Plans.
    The Stock is a thinly-traded security with quotes available only 
via the National Quotation Bureau's ``pink

[[Page 53721]]

sheets.'' From 1985 through 1989, the Hourly Plan purchased 2,926 
shares of the Stock from the Bank. The purchase price of these shares 
varied between $53 and $65 per share. As the result of a two-for-one 
stock split on April 10, 1986, and a four-for-one stock split on May 1, 
1994, the Hourly Plan obtained an additional 12,778 shares of the 
Stock.
    From 1988 through 1993, the Salaried Plan purchased 2,300 shares of 
the Stock from the Bank. The purchase price of these shares varied 
between $47 and $53 per share. The Salaried Plan obtained an additional 
6,900 shares of Stock as a result of the May 1, 1994 stock split.
    4. According to the applicant, the Trustees originally purchased 
the Stock on behalf of the Plans in the mid-1980's in response to the 
increasing number of bank mergers in western Pennsylvania and in 
anticipation that this trend would continue.
    However, in the months preceding the consummation of the 
transactions, the Trustees concluded that the period of speculation on 
local bank mergers had ended. The Trustees decided that the assets of 
the Plans would have greater long-term profit potential if they were 
placed with a professional asset management company.
    When Millcraft Industries expressed interest in purchasing the 
Stock, the Trustees decided to sell the shares at the prevailing market 
value. Accordingly, on November 15, 1996, the Trustees authorized 
Merrill Lynch to sell 1,200 shares of the Stock from the Salaried Plan 
to Millcraft Industries for $30,900, or $25.75 per share. Then, on 
November 20, 1996, the Trustees authorized Merrill Lynch to sell an 
additional 8,000 shares of the Stock to Millcraft Industries from the 
Salaried Plan for $206,000, or $25.75 per share. Finally, also on 
November 20, 1996 the Trustees authorized Merrill Lynch to sell 15,704 
shares of the Stock to Millcraft Industries from the Hourly Plan for 
$404,378, or $25.75 per share.
    As of November 20, 1996, the Plans had sold a total of 24,904 
shares of the Stock to Millcraft Industries at $25.75 per share. 
According to the applicant, the Salaried Plan earned a profit of 
$116,800, or an average of $12.70 per share, and the Hourly Plan earned 
a profit of $237,300, or an average of $15.11 per share. In addition, 
the applicant represents that the Plans incurred no brokerage 
commissions or other charges as a result of the above transactions.
    5. The applicant requests retroactive relief for the aforementioned 
transactions involving the Sales of stock from the Plans. The applicant 
represents that at the time of the transactions, the Trustees and 
Millcraft Industries were not aware that the transactions were 
prohibited under ERISA and the Code and that they would not have 
engaged in these transactions had they been aware of this fact.
    6. Prior to executing these transactions, Millcraft Industries 
employed Parker/Hunter, Inc. (Parker/Hunter), a market maker in the 
Stock, to ascertain the fair market value of the shares. Parker/Hunter, 
a member of the New York Stock Exchange and the Securities Investors 
Protection Corporation, is a full service brokerage and investment 
banking firm headquartered in Pittsburgh, Pennsylvania with 300 
employees in 21 offices throughout Pennsylvania, Ohio and West 
Virginia. The firm is independent of the Plans, Millcraft Industries 
and Millcraft Products. In providing the pricing information to 
Millcraft Industries, Parker/Hunter used data from the most recent 
sales of the Stock to determine that the fair market value of the Stock 
on November 15, 1996 and November 20, 1996 was $25.75 per share.
    7. Upon discovering in August 1997 that its purchases of the Stock 
from the Plans were prohibited, Millcraft Industries promptly sought 
legal advice as to the steps needed to correct these violations. On 
October 31, 1997, Millcraft Industries represents that it reversed the 
transactions in accordance with 26 CFR 53.4941(e)-1(c) of the Treasury 
Department Regulations by instructing Merrill Lynch to transfer 9,200 
shares of the Stock to the Salaried Plan and transfer 15,704 shares of 
Stock to the Hourly Plan.<SUP>18</SUP> At the same time, the Trustees 
instructed the Plans' broker to transfer $236,900, or $25.75 per share, 
from the Salaried Plan to Millcraft Industries and $404,378, or $25.75 
per share, from the Hourly Plan to Millcraft Industries.<SUP>19</SUP> 
The applicant represents that no commissions were charged with respect 
to the correction.<SUP>20</SUP>
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    \18\ The Department expresses no opinion regarding whether the 
corrective actions taken by the applicant were done in accordance 
with 26 CFR 53.4941(e)-1(c) of the Treasury Regulations.
    \19\ Prior to reversing the transactions, Millcraft consulted 
Parker/Hunter to determine the fair market value of the Stock. 
Parker/Hunter determined that the fair market value of the Stock as 
of October 31, 1997 would be in excess of $25.75 per share. Merrill 
Lynch account statements for October 1997 confirm that the estimated 
market price of the Stock was $31.50 per share at the time of the 
reversal transaction.
    \20\ The applicant also wishes to note that while holding the 
Stock, Millcraft Industries received $12,950.08 in dividends. 
Pursuant to 26 CFR 53.4941(e)-1(c)(2) of the Treasury Regulations, a 
disqualified person must pay to the plan any income derived by him 
from the property he received from the original prohibited sale to 
the extent such income exceeds the income derived by the plan from 
the cash which the disqualified person originally paid to the plan. 
The applicant represents that the Plans invested the $641,278 
received from Millcraft Industries in the transactions, and on these 
various investments earned an estimated $125,000. Because this 
amount substantially exceeds the $12.950.08 in dividends received by 
Millcraft Industries while in possession of the Stock, Millcraft 
Industries determined that it was not required to remit an amount 
equal to the dividends to the Plans.
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    8. The applicant represents that the Sales were administratively 
feasible in that each involved a one-time transaction for cash. 
Furthermore, the applicant states that the transactions were in the 
interests of the Plans and their participants and beneficiaries because 
the Stock was sold in an attempt to facilitate investment in assets 
achieving a higher a rate of return, and were conducted in such a 
manner as to ensure that the Plans received a return on the Stock in 
excess of their original investment. Finally, the applicant represents 
that the transactions were protective of the rights of the participants 
and beneficiaries because the Plans received the fair market value of 
the Stock as determined by a qualified, independent appraiser.
    9. In summary, the applicant represents that the subject 
transaction satisfied the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code for the 
following reasons: (a) The terms of the Sales were at least as 
favorable to the Plans as those obtainable in an arm's length 
transaction with an unrelated party; (b) The Sales were one-time 
transactions for cash; (c) The Plans paid no commissions or expenses 
relating to the Sales; and (d) The Sales were for no less than the fair 
market value of the Stock as determined by a qualified, independent 
appraiser.
Notice to Interested persons
    Notice of the proposed exemption shall be given to all interested 
persons in the manner agreed upon by the applicant and the Department 
within 15 days of publication in the Federal Register. Such notice 
shall include a copy of the notice of pendency of the exemption as 
published in the Federal Register and shall inform interested persons 
of their right to comment and request a hearing with respect to the 
proposed exemption. Comments and requests for a hearing are due on or 
before November 20, 1998.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier of the 
Department, telephone (202) 219-8881 (this is not a toll-free number).

[[Page 53722]]

General Information

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

    Signed at Washington, DC, this 30th day of September, 1998.
Ivan Strasfeld,
Director of Exemption Determinations Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-26621 Filed 10-5-98; 8:45 am]
BILLING CODE 4510-29-P