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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Citizens Bank New Hampshire [Notices] [12/24/1998]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Citizens Bank New Hampshire [12/24/1998]

[PDF Version]

Volume 63, Number 247, Page 71301-71311

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 98-60; Exemption Application No. D-
10352, et al.]

 
Grant of Individual Exemptions; Citizens Bank New Hampshire

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, 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 proposed to the Secretary 
of Labor.

Statutory Findings

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

Citizens Bank New Hampshire, Located in Manchester, New Hampshire

[Prohibited Transaction Exemption 98-60; Exemption Application No. D-
10352]

Section I--Exemption for In-Kind Transfers of CIF Assets
    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 were 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),<SUP>1</SUP> the 
investment adviser and investment sub-adviser of which were 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:
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    \1\ In this regard, the Bank represents that any further in-kind 
transfers of CIF assets to the B/B Fund will comply with the 
conditions of Prohibited Transaction Exemption (PTE) 97-41 (62 FR 
42830, August 8, 1997). PTE 97-41 permits the purchase by employee 
benefit plans (i.e. the Client Plans) of shares of one or more open-
ended management investment companies (i.e. mutual funds) registered 
under the 1940 Act in exchange for assets of the Client Plans 
transferred in-kind to the mutual fund from a collective investment 
fund (i.e. the CIF) maintained by a bank or a plan adviser, where 
the bank or plan adviser is the investment adviser to the mutual 
fund and also a fiduciary to the Client Plans, if the conditions of 
the exemption are met. However, as noted further below, the Bank 
distributed written confirmation to the Client Plans regarding the 
in-kind transfer of CIF assets made to the Funds within 150 days, 
rather than within the 105-day period required by Section I(g) of 
PTE 97-41. Thus, an individual exemption to cover these specific CIF 
conversions is necessary to provide the appropriate retroactive 
relief.
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    (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) The transferred assets constituted the Client Plans' pro rata 
portion of all assets that were held by the CIF immediately prior to 
the transfer;
    (C) 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);
    (D) 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 (D) 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

[[Page 71302]]

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;
    (E) On the basis of the information described in paragraph (D) 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 BBOI, BIAM or the Bank 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;
    (F) The Bank sent by regular mail to the Second Fiduciary no later 
than 150 days <SUP>2</SUP> after the completion of the transfer a 
written confirmation that contained the following information:
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    \2\ See Footnote 1 Above.
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    (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;
    (G) 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;
    (H) 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;
    (I) Neither the Bank, BBOI, BIAM 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; and
    (J) 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) and 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, as 
well as for acting as a 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

[[Page 71303]]

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 B/B 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 
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; and
    (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 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

[[Page 71304]]

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 is effective as of October 11, 1996.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on October 6, 
1998, at 63 FR 53709.
    Modifications: The Department, with the consent of the applicant's 
representative, has made certain modifications to the conditions 
contained in Section I of the Notice.
    First, a new condition (B) has been added to Section I of this 
exemption which requires that the transferred assets must have 
constituted the Client Plan's pro rata portion of all assets that were 
held by the CIF immediately prior to the transfer.
    Second, a footnote has been added to the operative language in 
Section I to clarify that any future in-kind transfers of CIF assets to 
the Funds will comply with the conditions of PTE 97-41 (62 FR 42830, 
August 8, 1997), a class exemption granted by the Department which 
covers such transactions if the conditions of the exemption are met.
    No other written comments, and no requests for a hearing, were 
received by the Department.
    Accordingly, the Department has determined to grant the proposed 
exemption, as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. Christopher J. Motta of the 
Department, telephone (202) 219-8883 (This is not a toll-free number).

John Hancock Mutual Life Insurance Company (JHMLIC), Located in 
Boston, Massachusetts

[Prohibited Transaction Exemption 98-61; Application No. D-10484]

Exemption

    The restrictions of section 406(b)(2) of the Act shall not apply to 
the proposed purchases and sales of Timber Assets between various 
Accounts that are managed by Hancock Natural Resource Group, Inc. 
(HNRG), John Hancock Timber Resource Corporation (JHTRC), or another 
Affiliate of JHMLIC.
Conditions and Definitions
    This exemption is subject to the following conditions:
    1. ERISA-Covered Plans may participate in the proposed transactions 
only if they have total assets in excess of $100 million.
    2. At least 30 days prior to the proposed transaction, each 
affected Customer invested in the Accounts participating in the 
transaction will be provided with information regarding the Timber 
Assets involved and the terms of the transaction, including the 
purchase price and how the transaction would meet the goals and 
investment policies of the Customer. Notice of any change in the 
purchase price will be provided to the Customer at least 30 days prior 
to the consummation of the transaction.
    3. An Independent Fiduciary will be appointed by JHMLIC or an 
Affiliate as follows:
    (a) Where the proposed transaction involves an ERISA-Covered Plan 
(including a Pooled Separate Account or other Account holding ``plan 
assets'' subject to the Act)<SUP>3</SUP> and a Non-ERISA Plan or other 
Non-ERISA Customer, an Independent Fiduciary will be appointed to 
represent the Account in which the ERISA-Covered Plan is invested, 
whether that Account is the buyer or the seller of the Timber Assets in 
the proposed transaction;
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    \3\ See 29 CFR 2510.3-101 for the Department's definition of 
``plan assets'' relating to plan investments.
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    (b) Where the proposed transaction involves two ERISA-Covered Plans 
(or Pooled Separate Accounts or other Accounts holding ``plan assets'' 
subject to the Act) and the decision to liquidate the Timber Asset is 
the result of one or more ``triggering events'' described below, an 
Independent Fiduciary will be appointed by JHMLIC or an Affiliate to 
represent the purchasing plan (or Pooled Separate Account or other 
Account holding ``plan assets'')--i.e. the Buying Account. A 
``triggering event'' will exist whenever:
    (i) JHMLIC or an Affiliate receives a direction from the Customer 
to liquidate all of the Customer's Account or interest in an Account, 
and the decision to select any particular Timber Asset to be sold is 
outside of the control of JHMLIC and its Affiliates;
    (ii) JHMLIC or an Affiliate receives a request by the Customer to 
liquidate a specified timber property held in the Customer's Account, 
and the decision to liquidate the Timber Asset is outside of the 
control of JHMLIC and its Affiliates; or
    (iii) a liquidation of all of the assets held in the Selling 
Account, or a particular property held by such Account, is required 
under the terms of the investment contract, insurance contract or 
investment guidelines governing the Account, and the decision to select 
any particular Timber Asset to be sold is outside of the control of 
JHMLIC and its Affiliates; and
    (c) Where the proposed transaction involves two ERISA-Covered Plans 
(or Pooled Separate Accounts or other Accounts holding ``plan assets'' 
subject to the Act) and there is no ``triggering event'' as described 
above in Condition 3(b), or where a Pooled Separate Account in which a 
Hancock Plan participates is the Selling Account, an Independent 
Fiduciary will be appointed by JHMLIC or an Affiliate for each Account 
involved in the transaction.
    4. With respect to each transaction requiring the participation of 
an Independent Fiduciary (as described in Condition 3 above), the 
purchase and sale of a Timber Asset shall not be consummated unless the 
Independent Fiduciary determines that the transaction, including the 
price to be paid or received for the property, would be in the best 
interest of the particular Account involved based on the investment 
policies and objectives of such Account.
    5. Each Account which buys or sells a particular Timber Asset pays 
no more than or receives no less than the fair market value of the 
Timber Asset at the time of the transaction, as determined by a 
qualified independent real estate appraiser experienced with the 
valuation of timber properties similar to the type involved in the 
transaction.
    6. Each purchase or sale of a Timber Asset between Accounts is a 
one-time cash transaction.
    7. Each Account involved in the purchase or sale of a Timber Asset 
pays no real estate commissions or brokerage fees relating to the 
transaction.
    8. JHMLIC or an Affiliate acts as a discretionary investment 
manager for the assets of the Accounts involved in each transaction, 
provided that this condition will not fail to have been met solely 
because the Customer retains the right to veto or approve the purchase 
or sale of Timber Assets.
    9. An Account does not participate in a covered transaction if the 
assets of any Hancock Plan(s) in the Account exceed 20 percent of the 
total assets of the Account.
    10. No purchase or sale transaction is designed to benefit the 
interests of one particular Account over another.
    11. For purposes of this exemption:
    (a) ``Account'' means a Separate Account as defined below, 
including a ``Non-Pooled Separate Account'' or a ``Pooled Separate 
Account,'' as well as a limited partnership or limited liability 
company for which JHMLIC or an

[[Page 71305]]

Affiliate serves as general partner, investment manager or adviser.
    (b) ``Timber Asset'' means a fee simple in timberland (and 
appurtenant rights), as well as a timber lease or timber deed, provided 
that, with respect to any timber lease or timber deed: (i) the 
underlying fee simple is owned by a person other than JHMLIC, its 
Affiliates, or any Account at the time of sale; and (ii) the entire 
deed or lease originally acquired by the Selling Account is sold to the 
Buying Account.
    (c) ``ERISA-Covered Plan'' is an employee benefit plan as defined 
under section 3(3) of the Act;
    (d) ``Non-ERISA Plan'' or ``Non-ERISA Customer'' means an entity or 
investor not covered by the provisions of Title I of the Act, such as a 
governmental plan, a university endowment fund, a charitable foundation 
fund or other institutional investor, whose assets are managed in an 
Account for which JHMLIC or an Affiliate acts as investment manager;
    (e) ``Affiliate'' means any person directly or indirectly through 
one or more intermediaries, controlling, controlled by, or under common 
control with JHMLIC;
    (f) ``Buying Account'' means the Account which seeks to purchase 
Timber Assets from another Account;
    (g) ``Selling Account'' means the Account which seeks to sell 
Timber Assets to another Account;
    (h) ``Independent Fiduciary'' means a person or entity with 
authority to both review the appropriateness of the proposed 
transaction for an Account, that is considered to hold ``plan assets'' 
subject to the fiduciary responsibility provisions of the Act, based on 
the investment policy established for that Account, and to negotiate 
the terms of the transaction, including the price to be paid for the 
Timber Asset. An individual or firm selected to serve as an Independent 
Fiduciary shall meet the following criteria:
    (1) The individual or firm may have no current employment 
relationship with JHMLIC or an Affiliate, although a prior employment 
relationship would not disqualify the individual or firm;
    (2) No individual or firm may serve as an Independent Fiduciary 
during any year in which gross receipts received from business with 
JHMLIC and its Affiliates for that year exceed five (5) percent of such 
individual's or firm's gross receipts from all sources for the prior 
year;
    (3) The individual or firm must be an expert with respect to 
timberland valuations;
    (4) The individual or firm must have the ability to access (itself 
or through persons engaged by it) appropriate timberland sales 
comparison data and make appropriate adjustments to the subject 
property; and
    (5) The individual or firm must not have a criminal record 
involving fraud, fiduciary standards, or securities laws violations;
    (i) ``Separate Account'' means a segregated asset Account which 
receives premiums or contributions from customers, including employee 
benefit plans subject to the Act, in connection with group annuity 
contracts and funding agreements, with investments held in the name of 
JHMLIC, but where the value of the contract or agreement to the 
Customer (contractholder) fluctuates with the value of the investment 
associated with such Account;
    (j) ``Non-Pooled Separate Account'' or ``Non-Pooled Account'' means 
a Separate Account established to back a single contract issued to one 
Customer, which may be an employee benefit plan subject to the Act;
    (k) ``Pooled Separate Account'' or ``Pooled Account'' means a 
Separate Account established to back a group of substantially identical 
contracts issued to a number of unrelated Customers, including employee 
benefits plans subject to the Act; and
    (l) ``Customer'' means a person or entity that acts as the 
authorized representative for the investor in an Account involved in a 
proposed purchase or sale of Timber Assets, that is independent of 
JHMLIC and its Affiliates, provided, however, that for any Hancock Plan 
(as defined in Paragraph 11(m) below), a ``Customer'' shall mean the 
Plan Investment Advisory Committee of JHMLIC.
    (m) ``Hancock Plan'' means an employee benefit plan sponsored by 
JHMLIC or an Affiliate which invests in an Account.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on June 29, 1998, at 63 FR 
35284.
    WRITTEN COMMENTS: The applicant (i.e. JHMLIC) submitted a number of 
comments on the notice of proposed exemption (the Notice). These 
comments, and the modifications to the Notice made by the Department in 
response thereto, are discussed below.
    First, with respect to the scope of the exemption, JHMLIC requests 
that the term ``Account,'' as defined in Paragraph 10 of the Notice, be 
expanded to include limited liability companies (LLCs). JHMLIC 
represents that LLCs offer several advantages over limited 
partnerships, which make LLCs an increasingly popular form of ownership 
of investment property. These advantages include more flexibility in 
the management of the business than exists with partnerships and more 
liquidity in the transferability of an interest in an LLC than in a 
limited partnership. JHMLIC states that LLCs would be subject to the 
same conditions and safeguards in the requested exemption as 
partnerships. For example, the role of the Independent Fiduciary of the 
LLC would be the same as its role with respect to a partnership.
    Thus, JHMLIC proposes that the Department redefine the term 
``Account'' in Paragraph 10(a) of the Notice to include both limited 
partnerships and LLCs, and to delete the separate definition of the 
term ``Partnership'' contained in Paragraph 10(b) of the Notice.
    The Department has modified the definition of the term ``Account'' 
(see Paragraph 11(a) of this exemption) to reflect the changes 
requested by JHMLIC.
    Second, with respect to the use of the term ``timber property'' in 
the operative language and conditions contained in the Notice, JHMLIC 
requests that the relief provided by the exemption cover purchases and 
sales of ``Timber Assets'' and that such term should be separately 
defined to include both fee simple interests in timber properties and 
timber-related assets, such as timber leases and timber deeds.
    JHMLIC represents that timber investments often involve the 
acquisition and holding of property rights other than fees simple. For 
example, timber portfolios routinely include such valuable assets as 
timber leases and timber deeds. A timber lease is a contract between a 
landowner (the lessor) and another party (the lessee) under which the 
lessee is granted the right to use the land for the production of 
timber for a specified period of time. Timber leases typically specify 
how the land is to be managed and the condition in which the land must 
be returned to the lessor at the end of the lease. Timber lessees have 
significant rights, including the right to plant, grow and harvest 
timber. A timber deed is a contract under which the landowner grants to 
a third party the right to harvest existing timber. Typically, the deed 
holder is not required to harvest all or any portion of the timber and 
its right to do so will be forfeited after a specified period of time. 
Timber deeds do not generally involve replanting by the deed holder 
either for the benefit of the landowner or the deed holder.
    JHMLIC states that timber leases and timber deeds may be bought and 
sold

[[Page 71306]]

independently of the underlying fee simple. For example, while an 
Account may not own a fee simple on a particular timber property it may 
have the contractual right to harvest the timber on that property. The 
management and valuation of timber deeds and leases are the province of 
the same managers and appraisers who manage and value timberland fees 
simple. JHLMIC represents that when an Account invests in timber leases 
or deeds, the fee simple interest is held by an unrelated party, not by 
another Account or by JHMLIC or an Affiliate. Thus, where an Account 
owns the underlying fee simple in a timber property, rather than a 
timber lease or timber deed, it retains the right to harvest the timber 
and does not assign that right to any other party, including another 
Account. In addition, JHMLIC states that if a timber deed or timber 
lease is owned by an Account as a Timber Asset, and that deed or lease 
is sold to another Account under the conditions of this exemption, the 
entire deed or lease originally acquired by the Selling Account will be 
sold to the Buying Account. This condition will prevent these timber 
deeds and leases from being ``parcelized'' between the various 
Accounts.
    JHLMIC states further that other property rights, including mineral 
rights, easements and recreational leases, are rights that are 
appurtenant to the fee simple interest in a timber property. Such 
rights are bought and sold, and appraised, as part of the fee. These 
rights are currently contemplated by use of the term ``timber 
property'' in the Notice. JHMLIC states that it is not seeking to have 
the exemption cover the transfer of these rights apart from the 
underlying fee simple.
    Thus, JHMLIC proposes to add the term ``Timber Asset'' to the 
exemption and to define such term to mean a fee simple in timberland 
(and appurtenant rights), as well as a timber lease or timber deed, 
provided that, with respect to any timber lease or timber deed: (i) the 
underlying fee simple is owned by a person other than JHMLIC, its 
Affiliates, or any Account at the time of sale; and (ii) the entire 
deed or lease originally acquired by the Selling Account is sold to the 
Buying Account.
    The Department has modified the definitions contained in the 
exemption by adding the term ``Timber Asset'' to such definitions, 
which is included as the new Paragraph 11(b) above.
    Third, with respect to the definition of the term ``Customer'' in 
Paragraph 10(l) of the Notice, JHMLIC states that plans sponsored by 
JHMLIC and its affiliates (i.e., Hancock Plans) also invest in Timber 
Assets through Pooled Separate Accounts maintained by HNRG, JHTRC or 
another Affiliate of JHMLIC. Currently, the John Hancock Pension Plan 
has interests in three pooled accounts. These interests constitute 
15.6%, 10% and 9.9%, respectively, of these Accounts.
    JHMLIC states that the Notice, as drafted, would make the exemption 
unavailable to these Pooled Separate Accounts merely because a Hancock 
Plan has an interest in them. This result occurs because the term 
``Customer'' in Paragraph 10(l) of the Notice requires that disclosures 
regarding a covered transaction be provided to a person that is 
independent of JHMLIC and its Affiliates. In this regard, JHMLIC states 
that it is not appropriate to deny an entire Pooled Separate Account 
access to the cost savings associated with the covered transactions 
merely because a Hancock Plan participates in the Account. JHMLIC 
states that the terms and conditions of the exemption, including the 
requirements for either a ``triggering event'' (as described in 
Condition 3(b) above) or an Independent Fiduciary to act on behalf of 
the Account, will address potential conflicts of interest that could be 
deemed to exist by virtue of the participation of the Hancock Plans as 
investors in such Accounts.
    Thus, JHMLIC proposes to redefine the term ``Customer'' to permit 
that term to include the Plan Investment Advisory Committee of JHMLIC 
for purposes of interests held in an Account by a Hancock Plan. In this 
regard, JHMLIC represents that the interests of any Hancock Plan(s) in 
such Accounts will not exceed 20 percent of that Account.
    As a further safeguard to avoid potential conflicts of interest in 
transactions between an Account in which a Hancock Plan participates 
and other Accounts, JHMLIC proposes that Paragraph 3(c) of the 
exemption require that an Independent Fiduciary be appointed to 
represent any Selling Account in which a Hancock Plan participates, 
whether or not there exists a ``triggering event'' for the sale of the 
Timber Asset by that Account.
    Therefore, the Department has modified the definition of the term 
``Customer'' (see Paragraph 11(l) above) to allow the Plan Investment 
Advisory Committee of JHMLIC to come within the meaning of that term 
for purposes of the exemption. In addition, the Department has added 
``Hancock Plan'' as a new term which is defined in Paragraph 11(m) 
above. The Department has also added a new Paragraph 9 to the exemption 
(as discussed further below) which requires that any Hancock Plan 
covered under the exemption must be an investor which has interests in 
an Account which, when combined with the interests of any other Hancock 
Plan, do not exceed 20 percent of that Account. Finally, the Department 
has modified the conditions relating to the appointment of an 
Independent Fiduciary, as stated in Paragraph 3, to require that an 
Independent Fiduciary represent any Selling Account in which a Hancock 
Plan participates regardless of whether the sale of a Timber Asset by 
that Account results from a ``triggering event''.
    Fourth, with respect to the role of an Independent Fiduciary, 
JHMLIC represents that in Paragraph 3 of the Notice, the flush language 
suggests that in all cases when an Independent Fiduciary is appointed, 
the Independent Fiduciary will represent the interests of the ERISA-
Covered Plans. JHMLIC wishes to clarify that in the case of a Pooled 
Separate Account the Independent Fiduciary will represent the interests 
of the Account, and therefore all of its participating plans--whether 
ERISA-Covered Plans or other types of plans. In this regard, the 
Department also received two comment letters from the Fire and Police 
Pension Association of Colorado, a client of HTRG, requesting that the 
role of the Independent Fiduciary for such an Account be clarified in 
order to refer to non-ERISA plans.
    Thus, JHMLIC proposes that the phrase ``* * * to represent the 
interests of the ERISA-Covered Plans'' be deleted from the flush 
language of Paragraph 3 of the exemption, noting that the remaining 
language, plus subparagraphs (a), (b) and (c) of Paragraph 3, would 
then adequately address the role of the Independent Fiduciary for all 
investors in an Account.
    The Department has modified the language of Paragraph 3 of the 
exemption by making the deletion requested by JHMLIC.
    Fifth, with respect to an independent appraisal of a timber 
property to establish its fair market value, Paragraph 5 of the Notice 
requires that the price used for a covered transaction be established 
by an ``independent real estate appraiser.'' In this regard, JHMLIC 
proposes that the qualifications for the Independent Fiduciary, as 
stated in Paragraph 10(h) of the Notice, be modified so that the 
Independent Fiduciary is not required to be a qualified appraiser. 
JHMLIC states that while the Independent Fiduciary selected may perform 
appraisals in the ordinary course of its business, JHMLIC would like to 
have the flexibility to engage a fiduciary who is not

[[Page 71307]]

necessarily a qualified appraiser of timber assets. In such instances, 
the appraisal required by the exemption (see Paragraph 5 above) would 
be obtained by the Independent Fiduciary from another person who is an 
independent qualified appraiser.
    Thus, JHMLIC proposes that modifications to the definition of the 
term ``Independent Fiduciary'' be made to recognize that although the 
fiduciary chosen for an Account will be an expert in timberland 
valuations (e.g., a forestry consultant), the person chosen may not be 
a qualified independent timberland appraiser.
    The Department has modified the definition of ``Independent 
Fiduciary'' in the exemption in response to JHMLIC's comments. Under 
the new definition, the language that was contained in Paragraph 
10(h)(3) and (4) of the Notice has been changed to require that an 
Independent Fiduciary be an expert in timberland valuations, and have 
the ability to access (itself or through persons engaged by it) 
appropriate timberland sales comparison data. In addition, the 
requirements relating to an Independent Fiduciary being a qualified 
independent real estate appraiser who is proficient in timberland 
appraisal work (as described in Paragraph 10(h)(3) thru (5) of the 
Notice) have been deleted.
    In response to further discussions with and comments from JHMLIC, 
the Department has also modified the criteria for an individual or firm 
to serve as an Independent Fiduciary when that individual or firm 
receives a significant amount of compensation from JHMLIC and its 
Affiliates for business with those entities during the current calendar 
year. Paragraph 10(h)(2) of the Notice stated that the individual or 
firm must not have received more than five (5) percent of its annual 
gross receipts during the preceding calendar year from business with 
JHMLIC and its Affiliates. Under the new definition of ``Independent 
Fiduciary'' in Paragraph 11(h)(2) of this exemption, no individual or 
firm may serve as an Independent Fiduciary during any year in which 
gross receipts received from business with JHMLIC and its Affiliates 
for that year exceed five (5) percent of such individual's or firm's 
gross receipts from all sources for the prior year.
    Sixth, Paragraph 8 of the Notice limits the relief that would be 
provided under the exemption to those Accounts over which JHMLIC or an 
Affiliate is a ``discretionary investment manager.'' JHMLIC states that 
in a few situations involving timber assets managed through entities 
other than Separate Accounts, JHMLIC or an Affiliate has discretion to 
perform day-to-day management of the assets held in an Account but must 
obtain the Customer's approval for the purchase and sale of timber 
assets. JHMLIC notes that if the relief requested under the exemption 
is limited to Accounts over which JHMLIC has discretionary management 
authority, it will not be clear whether the exemption would cover 
purchases or sales of Timber Assets held in an Account for which JHMLIC 
must obtain the Customer's approval for such transactions.
    In response to this comment, the Department has modified Paragraph 
8 of the exemption as follows:

    * * * JHMLIC or an Affiliate acts as a discretionary investment 
manager for the assets of the Accounts involved in each transaction, 
provided that this condition will not fail to have been met solely 
because the Customer retains the right to veto or approve the 
purchase or sale of Timber Assets. [emphasis added]

    No other comments, and no requests for a hearing, were received by 
the Department.
    Accordingly, the Department has determined to grant the exemption 
as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Barclays Bank PLC (Barclays) Located in London, England

[Prohibited Transaction Exemption 98-62; Exemption Application No. D-
10486]

Exemption

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 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 or bank.
    (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 the Plan assets involved in the transaction, or 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

[[Page 71308]]

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, wire transfer or similar means, 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>4</SUP> had it remained the record owner of such 
securities.
---------------------------------------------------------------------------

    \4\ 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 the 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 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. 
Notwithstanding the foregoing, Barclays or the Foreign Affiliate may, 
in the event they fail 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.
    (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

[[Page 71309]]

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) Upon request, notice of the proposed exemption and the final 
exemption, when available, is provided to any Plan which proposes to 
engage in transactions to which the exemptive relief described herein 
would apply.
Section III. Definitions
    For purposes of this 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: This exemption is effective as of July 31, 1997.
    For a more complete statement of the facts and representations 
supporting this exemption, refer to the notice of proposed exemption 
(the Notice) published on October 6, 1998 at 63 FR 53714.

Written Comments

    The Department received one written comment with respect to the 
Notice. The comment, which was submitted by Barclays suggested 
modifications to the conditional language of the Notice as well as to 
the Summary of Facts and Representations (the Summary). These changes 
are discussed below.

Consistency With Recent Securities Lending Exemptions

    1. Section I.C., Condition (9). In Section I.C. of the Notice, 
Condition (9) (at 53716) provides that if a securities loan is 
terminated and Barclays or the Foreign Affiliate fails to return such 
securities or the equivalent thereof, then the Plan may purchase 
securities that are identical to the borrowed securities. In addition, 
Barclays or the Foreign Affiliate is required to 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.
    To make the provisions of Condition (9) consistent with the 
securities lending exemptions granted to Morgan Stanley & Co., (PTE 97-
08, 62 FR 4811, January 31, 1997) and to NatWest Securities Corporation 
(PTE 97-57, 62 FR 56203, October 29, 1997), Barclays suggests that the 
following sentence be inserted at the end of Condition (9) of Section 
I.C.:

    Notwithstanding the foregoing, Barclays or the Foreign Affiliate 
may, in the event they fail 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.

Barclays notes that the foregoing provision appears in PTE 97-08 at 
4812 and in PTE 97-57 at 56204.
    2. Representation 10. The third sentence in Representation 10 of 
the Summary (at 53718) states that Barclays or the Foreign Affiliate 
will be a party in interest with respect to a Plan involved in a 
principal transaction by reason of providing services to the Plan or by 
reason of a relationship to such service provider. To make this 
sentence consistent with PTE 97-8 (at 4811) and PTE 97-57 (at 56204) 
Barclays requests that the Department delete this sentence and replace 
it with the following:

    Further, Barclays represents that it or the Foreign Affiliate 
will be a party in interest or disqualified person with respect to 
the plan 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 a person described in such sections.

Barclays notes that this change is consistent with PTEs 97-08 (at 4811) 
and PTE 97-57 (at 56204) and Section I.A., Condition (3) of the Notice 
(at 53715).
    3. Section II(g). Section II(g) of the Notice (at 53716) requires 
that prior to any Plan's approval of any transaction, the Plan will be 
provided with copies of the Notice as proposed and as adopted in final 
form. However, Barclays states that neither PTE 97-08 nor PTE 97-57

[[Page 71310]]

contain a similar provision. Therefore, Barclays represents that it 
wishes to provide such communications upon request. Accordingly, 
Barclays proposes that Section II(g) be deleted and replaced with the 
following language:

    Upon request, notice of the proposed exemption and the final 
exemption, when available, is provided to any Plan which proposes to 
engage in transactions to which the exemptive relief described 
herein would apply.

Other Clarifications

    In addition to the foregoing changes, Barclays requests the 
following clarifications to the Notice and the Summary:
    1. Section I.A., Condition (1). In Section I.A. of the Notice, 
Condition (1) (at 53715) states that Barclays or the Foreign Affiliate 
customarily purchases or sells securities in the ordinary course of its 
business as a ``broker-dealer.'' Because it is a ``bank,'' Barclays has 
requested that the phrase ``or bank'' be inserted at the end of 
Condition (1). In addition, Barclays notes that this change is 
consistent with Representation 8 of the Summary (at 53718).
    2. Section I.B., Condition (1). In Section I.B. of the Notice, 
Condition (1) (at 53715) requires that Barclays or the Foreign 
Affiliate not be 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.
    Barclays requests that this condition be replaced with the 
following language which will make it consistent with Representation 12 
of the Summary (at 57318):

    Barclays or the Foreign Affiliate is not a fiduciary with 
respect to the Plan assets involved in the transaction, or no 
interest or other consideration is received by Barclays, the Foreign 
Affiliate or any of their affiliates in connection with such 
extension of credit.

    3. Section I.C., Condition (2). In Section I.C. of the Notice 
Condition (2) (at 53715) describes the collateralization requirements 
with respect to securities loans that are made by a Plan to Barclays or 
the Foreign Affiliate. In pertinent part, the condition states that the 
Plan may receive securities loan collateral from Barclays or the 
Foreign Affiliate, either by physical delivery or by book entry in a 
securities depository located in the United States. To make this 
language consistent with Representation 17 of the Summary (at 53719), 
Barclays requests that the Department revise the language at the 
beginning of Condition (2) to read as follows:

    The Plan receives from Barclays or the Foreign Affiliate, either 
by physical delivery, book entry in a securities depository located 
in the United States, wire transfer or similar means * * *.

    4. Representation 3. The second sentence of representation 3 of the 
Summary (at 53717) discusses principal and extension of credit 
transactions engaged in by Barclays and the Foreign Affiliate. It 
states that ``such transactions are currently being executed between a 
Plan and Barclays or a Plan and a 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).''
    To avoid ambiguity, Barclays proposes that this sentence be deleted 
and replaced with the following language:
    Barclays and the Foreign Affiliate currently engage in the purchase 
or sale of securities and extensions of credit in connection with such 
purchases and sales of securities in the normal course of their 
business as broker-dealers or banks.
    5. Representation 6. Representation 6 of the Summary (at 53717-18) 
describes Rule 15a-6 of the 1934 Act and its applicability to and 
compliance by Barclays and the Foreign Affiliate with the Rule's 
requirements. Barclays requests that references to the term ``U.S. 
major institutional investor'' and references to the term ``major 
institutional investor'' be changed to ``major U.S. institutional 
investor'' in order to be consistent with Rule 15a-6.
    In addition, for purposes of clarification, Barclays requests that 
the following sentence be inserted at the beginning of Footnote 15 of 
the Summary (at 53717):

    Note that the categories of entities that qualify as ``major 
U.S. institutional investors'' has been expanded by a Securities and 
Exchange Commission No-Action letter.

    Further, to avoid ambiguity, Barclays proposes that the reference 
to ``paragraphs (a) and (b)'' above referred to in Footnote 16 of the 
Summary (at 53718) be changed to read ``subparagraphs (a) and (b) of 
Representation 6.''
    The Department concurs with the modifications and clarifications to 
the Notice that have been suggested by Barclays and has, therefore, 
made all of the requested changes. For further information regarding 
Barclays's comment or other matters discussed herein, interested 
persons are encouraged to obtain copies of the exemption application 
file (Exemption Application No. D-10486) the Department is maintaining 
in this case. The complete application file, as well as all 
supplemental submissions received by the Department, are made available 
for public inspection in the Public Documents Room of the Pension and 
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 
200 Constitution Avenue, NW, Washington, DC 20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comment provided by the Barclays, the Department 
has made the aforementioned changes to the Notice and has decided to 
grant the exemption subject to the modifications or clarifications 
described above.

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

General Information

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


[[Page 71311]]


    Signed at Washington, D.C., this 21st day of December, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-34109 Filed 12-23-98; 8:45 am]
BILLING CODE 4510-29-P