skip to page content
Secretary of Labor Thomas E. Perez
     DOL Home > Federal Register > Notices > EBSA
EBSA Notices

Prohibited Transaction Exemption 2003-20; Grant of Individual Exemptions; Deutsche Bank Securities, Inc. and Its Affiliates   [7/8/2003]
[PDF]
FR Doc 03-17095

[Federal Register: July 8, 2003 (Volume 68, Number 130)]
[Notices]               
[Page 40689-40701]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy03-96]                         

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-10988 et al.]

 
Prohibited Transaction Exemption 2003-20; Grant of Individual 
Exemptions; Deutsche Bank Securities, Inc. and Its Affiliates

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of individual exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

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

Deutsche Bank Securities Inc. and Its Affiliates Located in New York, 
NY

[Prohibited Transaction Exemption 2003-20; Exemption Application No. D-
10988]

Exemption

    The restrictions of sections 406(a)(1)(A) through (D) of the Act 
and the sanctions resulting from 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, in the context of a 
portfolio liquidation or restructuring, between (i) Deutsche Bank 
Securities Inc. (DBSI) and its current and future affiliates, including 
certain foreign broker-dealers or banks (the Foreign Affiliates, as 
defined in Section III below), (collectively, the Applicant) and (ii) 
employee benefit plans (the Plans) with respect to which the Applicant 
is a party in interest, provided that the conditions set forth in 
Section II are satisfied.

Section II--Conditions

    A. The Applicant customarily purchases and sells securities for its 
own account in the ordinary course of its business as a broker-dealer 
or bank;
    B. The Applicant (including an affiliate) does not have 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, nor renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets.

[[Page 40690]]

    Notwithstanding the foregoing, the Applicant may be a directed 
trustee (as defined in Section III below) with respect to the Plan 
assets involved in the transaction.
    In addition, although the Applicant does not have discretionary 
authority or control over such Plan assets at the time of the 
transaction and has not used its discretion to appoint the transition 
broker-dealer, it may act as a fiduciary with respect to the Plan 
assets involved in the transaction, solely as: (i) The investment 
manager of such assets to be managed as an Index or Model-Driven Fund; 
or (ii) the investment manager of such assets who supplies a list of 
securities or other investments to be purchased, which list is prepared 
without regard to the identity of the broker-dealer and without 
reference to the portfolio being liquidated or restructured, and is 
substantially the same list that would be provided to other similarly 
situated investors with substantially similar investment guidelines and 
objectives, or is substantially similar to the investments in existing 
portfolios managed in the same style.
    Lastly, a transaction will not fail to meet the requirements of 
this section if the Applicant is being terminated as a manager of the 
Plan assets involved in the transaction, its investment discretion is 
terminated prior to the commencement of the portfolio liquidation or 
restructuring, and the Applicant has not used its discretion to appoint 
the transition broker-dealer;
    C. The transaction is a purchase or sale, for no consideration 
other than cash;
    D. The terms of any transaction are at least as favorable to the 
Plan as those obtainable in a comparable arm's length transaction with 
an unrelated party;
    E. An Independent Fiduciary has given prior approval that the 
transaction may be effectuated as a principal transaction and at a 
price that--
    (1) For an equity security, is specified in advance by the 
Independent Fiduciary and is a stated dollar amount, or is based on an 
objective measure (as of a specified date or dates), including, but not 
limited to, the closing price, the opening price, or the volume-
weighted average price; or
    (2) For a fixed income security, is a stated dollar amount, or is 
within the bid and asked spread, as of the close of the relevant market 
(or another predetermined time on a specified date or dates), as 
reported by an independent third party reporting service or a publicly 
available electronic exchange or trading system;
    F. In the case where the price for any transaction is not based on 
an objective measure, the Independent Fiduciary has given prior 
approval for the transaction, specifying whether the transaction is to 
be agency or principal, either on a security-by-security basis, or 
based on the whole portfolio or an identifiable part of the portfolio 
(such as all debt securities, all equity securities, all domestic 
securities, or the like);
    G. All purchases and sales executed on a principal basis are 
effected within two days following the Independent Fiduciary's 
direction to purchase or sell a given security--except that, with the 
approval of the Independent Fiduciary, the Applicant may extend such 
initial period for a time not exceeding two additional days, on the 
same terms;
    H. The Independent Fiduciary is furnished with confirmations 
including the relevant information required under Rule 10b-10 of the 
Securities Exchange Act of 1934 (the 1934 Act), to the extent required 
under Rule 10b-10, as well as a report, within five business days after 
the transaction is completed, containing the following information with 
respect to each security:

    (1) The identity of the security;
    (2) The date on which the transaction occurred;
    (3) The quantity and price of the securities involved; and
    (4) Whether the transaction was executed with the Applicant as 
principal or agent;
    I. Each Plan shall have total net assets with a value of at least 
$100 million. For purposes of the net assets test, where a group of 
Plans is maintained by a single employer or controlled group of 
employers, as defined in section 407(d)(7) of the Act, the $100 million 
net assets requirement may be met by aggregating the assets of such 
Plans, if the assets are pooled for investment purposes in a single 
master trust;
    J. The Applicant complies with all applicable securities or banking 
laws relating to the transaction;
    K. Any 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 transaction covered by the exemption;
    L. Any Foreign Affiliate, in connection with any transaction 
covered by the 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 (SEC) interpretations thereof, providing for 
foreign affiliates a limited exemption from U.S. broker-dealer 
registration requirements;
    M. 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. In 
this regard, the Foreign Affiliate must (i) agree to submit to the 
jurisdiction of the United States; (ii) agree to appoint an agent for 
service of process in the United States, which may be an affiliate (the 
Process Agent); and (iii) consent to service of process on the Process 
Agent;
    N. The Applicant 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 O, below, 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 
Applicant, 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 O; and
    (2) This record-keeping condition shall not be violated if, due to 
circumstances beyond the Applicant's control, such records are lost or 
destroyed prior to the end of the six year period; and
    O. Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Applicant makes the records referred to in 
Paragraph N, above, unconditionally available within the United States 
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 SEC; (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 Items (2) through (5) of this subsection is authorized to 
examine the trade secrets of the Applicant, or commercial or financial 
information which is privileged or confidential.

Section III--Definitions

    A. The term ``DBSI'' means Deutsche Bank Securities Inc. DBSI and 
its domestic affiliates must be one of the following: (i) A broker-
dealer registered under the 1934 Act; (ii) a reporting

[[Page 40691]]

dealer who makes primary markets in securities of the United States 
Government or of any agency of the United States Government 
(``Government securities'') and reports daily to the Federal Reserve 
Bank of New York its positions with respect to Government securities 
and borrowings thereon; or (iii) a bank supervised by the United States 
or a State. DBSI and its current and future affiliates, including the 
Foreign Affiliates (as defined in Paragraph C, below), are collectively 
referred to herein as ``the Applicant.''
    B. The term ``affiliate'' shall include: (1) Any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such person; (2) any officer, 
director, or partner, employee or relative (as defined in section 3(15) 
of the Act) of such person; and (3) any corporation or partnership of 
which such person is an officer, director 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.
    C. The term ``Foreign Affiliate'' means an affiliate of DBSI that 
is subject to regulation as a broker-dealer or bank by: (1) The 
Securities and Futures Authority or the Financial Services Authority in 
the United Kingdom, (2) the Federal Authority for Financial Services 
Supervision, i.e., der Bundesanstalt fuer Finanzdienstleistungsaufsicht 
(the BAFin) in Germany, (3) the Ministry of Finance and/or the Tokyo 
Stock Exchange in Japan; (4) the Ontario Securities Commission and/or 
the Investment Dealers Association, or the Office of the Superintendent 
of Financial Institutions, in Canada, (5) the Swiss Federal Banking 
Commission in Switzerland, or (6) the Australian Prudential Regulation 
Authority or the Australian Securities & Investments Commission, and/or 
the Australian Stock Exchange Limited, in Australia, or any 
governmental regulatory authority that is a successor in interest to 
any such regulator.
    D. The term ``security'' shall include equities, fixed income 
securities, options on equity or 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.
    E. The term ``index'' means a securities index that represents the 
investment performance of a specific segment of the public market for 
equity or debt securities in the United States and/or foreign 
countries, but only if--
    (1) The organization creating and maintaining the index is--
    (i) Engaged in the business of providing financial information, 
evaluation, advice, or securities brokerage services to institutional 
clients,
    (ii) A publisher of financial news or information, or
    (iii) A public securities exchange or association of securities 
dealers;
    (2) The index is created and maintained by an organization 
independent of the Applicant; and
    (3) The index is a generally accepted standardized index of 
securities that is not specifically tailored for the use of the 
Applicant.
    F. The term ``Index Fund'' means any investment fund, account, or 
portfolio trusteed or managed by the Applicant, in which one or more 
investors invest, and--
    (1) Which is designed to track the rate of return, risk profile, 
and other characteristics of an independently maintained securities 
index (as ``index'' is defined in Paragraph E, above) by either (i) 
replicating the same combination of securities that compose such index, 
or (ii) sampling the securities that compose such index based on 
objective criteria and data;
    (2) For which the Applicant does not use its discretion, or data 
within its control, to affect the identity or amount of securities to 
be purchased or sold;
    (3) That contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (4) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund that is intended to 
benefit the Applicant or any party in which the Applicant may have an 
interest.
    G. The term ``Model-Driven Fund'' means any investment fund, 
account, or portfolio trusteed or managed by the Applicant, in which 
one or more investors invest, and--
    (1) Which is composed of securities, the identity of which and the 
amount of which, are selected by a computer model that is based on 
prescribed objective criteria using independent third party data, not 
within the control of the Manager, to transform an Index (as defined in 
Paragraph E, above);
    (2) Which contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (3) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund, or the utilization of 
any specific objective criteria, that is intended to benefit the 
Applicant or any party in which the Applicant may have an interest.
    H. The term ``Plan'' means an employee benefit plan that is subject 
to the fiduciary responsibility provisions of the Act.
    I. The term ``Independent Fiduciary'' means a fiduciary of a Plan 
who is unrelated to, and independent of, the Applicant. For purposes of 
the exemption, a Plan fiduciary will be deemed to be unrelated to, and 
independent of, the Applicant if such fiduciary represents that neither 
such fiduciary, nor any individual responsible for the decision to 
authorize or terminate authorization for transactions described in 
Section I, is an officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the 
Applicant and represents that such fiduciary shall advise the Applicant 
if those facts change.
    (1) Notwithstanding anything to the contrary in this Section III, 
I, a fiduciary is not independent if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Applicant;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from the Applicant for his or her 
own personal account in connection with any transaction described in 
the exemption;
    (iii) Any officer, director, or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of the Applicant, 
responsible for the transactions described in Section I, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Plan sponsor or the fiduciary 
responsible for the decision to authorize or terminate authorization 
for transactions described in Section I. However, if such individual is 
a director of the Plan sponsor or the responsible fiduciary, and if he 
or she abstains from participation in (A) the choice of the Plan's 
broker-dealer or bank executing the transactions covered herein, and 
(B) the decision to authorize or terminate authorization for 
transactions described in Section I, then Section III, I(1)(iii) shall 
not apply.
    (2) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration

[[Page 40692]]

or finance), or any other officer who performs a policy-making function 
for the entity.
    J. The term ``directed trustee'' means a Plan trustee whose powers 
and duties with respect to any assets of the Plan involved in the 
portfolio liquidation or restructuring are limited to (i) the provision 
of nondiscretionary trust services to the Plan, and (ii) duties imposed 
on the trustee by any provision or provisions of the Act or the Code. 
The term ``nondiscretionary trust services'' means custodial services 
and services ancillary to custodial services, none of which services is 
discretionary. For purposes of the exemption, a person who is otherwise 
a directed trustee will not fail to be a directed trustee solely by 
reason of having been delegated, by the sponsor of a master or 
prototype Plan, the power to amend such Plan.

EFFECTIVE DATE: This exemption is effective as of February 6, 2003.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on February 6, 2003 at 68 FR 
6187.

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption (the Proposal). The comment was submitted 
by the Applicant, who requested certain modifications to the operative 
language as discussed below. Some additional editorial changes have 
been made by the Department to improve clarity and readability of the 
final exemption.
    1. The Applicant wished to revise Section II.B. of the Proposal (68 
FR 6188, center column) to clarify that this condition permits 
situations where the Applicant is both the legacy and the destination 
manager and permits legacy or destination positions in all investments, 
not just securities (although the exemption for principal transactions 
covers only securities).
    Thus, Section II.B. has been revised to read as follows (note 
bracketed deletions and italicized additions):

    B. [Neither] The Applicant (including an affiliate) [nor an 
affiliate thereof has] does not have discretionary authority or 
control with respect to the investment of the Plan assets involved 
in the transaction, [or] nor renders investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to those assets.
    Notwithstanding the foregoing, the Applicant may be a directed 
trustee (as defined in Section III below) with respect to the Plan 
assets involved in the transaction.
    [The original third paragraph has been moved to the end of 
Section II.B.]
    In addition, [a transaction will not fail to meet the 
requirements of this section solely because the Applicant is being 
retained as an investment manager with respect to the Plan assets 
involved in the transaction, provided that:] although the Applicant 
does not have discretionary authority or control over such Plan 
assets at the time of the transaction and has not used its 
discretion to appoint the transition broker-dealer, it may act as a 
fiduciary with respect to the Plan assets involved in the 
transaction, solely as: (i) [the Applicant has not used its 
discretion to appoint the transition broker-dealer; (ii)] the 
investment manager of such assets to be managed as an Index or 
Model-Driven Fund; or (ii) [(iii)] the investment manager of such 
assets who supplies a list of securities or other investments to be 
purchased, which list is prepared without regard to the identity of 
the broker-dealer and without reference to the portfolio being 
liquidated or restructured [(i.e., the] and is substantially the 
same list [is substantially the same as] that would be provided to 
other similarly situated investors with substantially similar 
investment guidelines and objectives, or [consists of] is 
substantially similar [the same securities as those in other] to the 
investments in existing [investment] portfolios managed in the same 
style.
    Lastly, [this condition will be deemed satisfied] a transaction 
will not fail to meet the requirements of this section if the 
Applicant is being terminated as a manager of the Plan assets 
involved in the transaction, [the termination is effective] its 
investment discretion is terminated prior to the commencement of the 
portfolio liquidation or restructuring, and the Applicant has not 
used its discretion to appoint the transition broker-dealer.

    2. The Applicant wished to eliminate the requirement in Section 
II.G. of the Proposal (68 FR at 6188, column 3) that the covered 
securities be ``publicly traded.'' According to the Applicant, the 
Independent Fiduciary can assess the fairness of pricing for a non-
publicly-traded security by one of the following means: (i) Review the 
value at which the security is being carried by the Plan; (ii) review 
the price that other dealers are quoting and the prices at which the 
security has been trading in the recent past; or (iii) canvass other 
holders of the security regarding an appropriate trading price.
    Further, the Applicant wished to revise Section II.G(2) of this 
condition (68 FR at 6188, column 3) so that the Independent Fiduciary 
and the bank or broker-dealer may agree on other objective price 
references besides ``close of market.''
    Accordingly, Section II.G., which has been relettered Section II.E. 
in sequence (while old Section II.E. is now II.F., and old Section 
II.F. is now II.G.), has been revised to read as follows (note 
bracketed deletions and italicized additions):

    E. [Prior to any transaction, the] An Independent Fiduciary has 
given prior approval [agrees] that the transaction [purchase or sale 
of a security, which must be one that is publicly traded,] may be 
effectuated [through] as a principal transaction and at a price 
that--
    (1) [in the case of] for an equity security, is specified in 
advance by the Independent Fiduciary and is a stated dollar amount, 
or is based on an objective measure (as of a specified date or 
dates), including, but not limited to, the closing price, the 
opening price, or the volume-weighted average price; or
    (2) [in the case of] for a fixed income security, is a stated 
dollar amount, or is within the bid and asked spread, as of the 
close of the relevant market (or another predetermined time on a 
specified date or dates), as reported by an independent third party 
reporting service or a publicly available electronic exchange or 
trading system.

    Further, Section II.E. of the Proposal (68 FR at 6188, column 3), 
which has been relettered Section II.F, has been revised to read as 
follows (note bracketed deletions and italicized additions):

    F. In the case where the price for any transaction is not based 
on an objective measure, [An] the Independent Fiduciary has given 
prior approval for the transaction, specifying [(solely in the case 
where the price for any principal transaction is not based on an 
objective measure)] whether the transaction is to be agency or 
principal * * *

    Also, Section II.F. of the Proposal (68 FR at 6188, column 3), 
which has been relettered Section II.G, has been revised by adding the 
italicized language:

    G. All purchases and sales executed on a principal basis are 
effected within two days following the Independent Fiduciary's 
direction to purchase or sell a given security--except that, with 
the approval of the Independent Fiduciary, the Applicant may extend 
such initial period for a time not exceeding two additional days, on 
the same terms.

    3. Regarding Section II.H. of the Proposal (68 FR 6188, column 3), 
the Applicant noted that this condition requires a Rule 10b-10 
confirmation to be sent for every trade, although some trades do not 
require such confirmations.
    Thus, Section II.H. has been revised to read as follows (note 
bracketed deletions and italicized additions):

    H. The Independent Fiduciary is furnished with confirmations 
including the relevant information required under Rule 10b-10 of the 
Securities Exchange Act of 1934 (the 1934 Act), to the extent 
required under Rule 10B-10, as well as a report, within five 
business days [of] after the transaction is completed, containing 
the following information with respect to each security * * *


[[Page 40693]]


    4. Finally, regarding Section III.C. of the Proposal (68 FR 6189, 
center column), the Applicant noted that, in foreign jurisdictions, the 
authority to regulate securities transactions may change from agency to 
agency, from time to time, or the legal name of the appropriate 
regulator may change.
    Thus, Section III.C. has been revised by adding the italicized 
language at the end of clause (6):

    C. The term ``Foreign Affiliate'' means an affiliate of DBSI 
that is subject to regulation as a broker-dealer or bank by: (1) * * 
*, or (6) * * *, and/or the Australian Stock Exchange Limited, in 
Australia, or any governmental regulatory authority that is a 
successor in interest to any such regulator.

    The Department concurs in the Applicant's requested changes to the 
operative language of this final exemption. Accordingly, based upon the 
information contained in the entire record, the Department has 
determined to grant the proposed exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

Arizona Machinery Group, Inc. (AMG) Located in Avondale, Arizona

[Prohibited Transaction Exemption 2003-21; Exemption Application No. D-
11142]

Exemption

Section I. Transactions Covered

    The restrictions of sections 406(a), (b)(1) and (b)(2), and 407(a) 
of the Act and the sanctions resulting from the application of section 
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to: (a) The acquisition by the Arizona 
Machinery Group Employees' Profit Sharing Retirement Plan (the Plan) of 
customer notes acquired from the Plan sponsor, AMG, or from any 
successor employer which sponsors the Plan at the time of the 
acquisition of such customer note, or from any other employer which at 
the time of the acquisition of such customer note has adopted the Plan 
(including employers which adopt the Plan subsequent to the date of 
this exemption) and which generates customer notes as defined herein in 
Section III (B), or from any affiliate of any such employer; (b) the 
Plan's holding of the customer notes, if the notes acquired and held by 
the Plan are guaranteed by the respective employer or affiliate, which 
accepted and held the customer notes prior to their acquisition by the 
Plan, as well as by AMG (when the customer note was accepted and held 
by an employer other than AMG); and (c) the repurchase of customer 
notes from the Plan by the employer or affiliate which initially 
transferred those notes to the Plan; provided that, with respect to 
each such transaction, the conditions set forth below in Section II are 
met.

Section II. Conditions

    (a) The transaction is on terms that are at least as favorable to 
the Plan as an arm's-length transaction with an unrelated party.
    (b) Prior to the consummation of a transaction described in section 
I of this exemption, the transaction is approved on behalf of the Plan 
by a qualified fiduciary who is independent of any of the sponsoring or 
adopting employers or affiliates of the employer(s)(an Independent 
Fiduciary), upon a determination made by such Independent Fiduciary 
that the other conditions of this exemption will be satisfied. The 
Independent Fiduciary shall acknowledge his or her plan fiduciary 
status under the Act in writing with respect to the transactions. For 
purposes of this paragraph, a person is independent of an employer even 
though he or she was selected by AMG or an adopting employer (or by a 
person with an interest in such employer) if he or she has no other 
interest in the transaction for which an exemption is sought that might 
affect his or her best judgment as a fiduciary under the Act.
    (c) The Plan's continuing rights under the terms and conditions of 
the acquired customer notes, and under this exemption, shall be 
monitored and enforced on behalf of the Plan by the same or another 
Independent Fiduciary who is independent of any of the sponsoring or 
adopting employers and who has acknowledged his or her fiduciary status 
and liability as described in paragraph (B) of this section. The 
Independent Fiduciary shall be responsible for taking all appropriate 
actions necessary to protect the Plan's rights with regard to the 
safety and collection of the notes purchased by the Plan. These actions 
shall include, but not be limited to, ascertaining that payments are 
received timely, diligently pursuing the receipt of delinquent payments 
and enforcing the employer's or affiliates' guarantees to repurchase 
delinquent notes, with accrued interest, as described in paragraph (e) 
of this section.
    (d) The acquisition of a customer note from AMG, an adopting 
employer, or an affiliate, shall not cause the Plan to hold immediately 
following the acquisition: (i) more than twenty-five percent (25%), in 
the aggregate, of the current value (as defined in section 3(26) of the 
Act) of Plan assets in customer notes of AMG, adopting employers or 
affiliates, or (ii) more than five percent (5%) of the current value of 
Plan assets in the notes of any one customer who is the obligor under 
such notes.
    (e) An employer or affiliate from which the Plan acquires a 
customer note, as well as AMG (when the customer note was acquired from 
an employer other than AMG), guarantees in writing the immediate 
repayment of the outstanding balance of the notes and accrued interest 
in the event that the note is more than 60 days in arrears or if other 
events occur that, in the opinion of the Independent Fiduciary referred 
to in paragraph (b) and (c) of section II, impair the safety of the 
note as a Plan investment. The Independent Fiduciary may, at his or her 
discretion, grant an additional 30-day extension before repurchase of 
the note by an employer or affiliate is necessary upon a petition by 
the employer or affiliate, if the fiduciary determines, after 
consultation with the employer or affiliate, that such an extension is 
in the best interests of the participants and beneficiaries of the 
Plan. The other events (of impairment) referred to above include, but 
are not limited to, the following:

    (1) The obligor on the note fails to comply with any terms or 
conditions of the note;
    (2) The obligor becomes insolvent, commits an act of bankruptcy, 
makes an assignment for the benefit of creditors or a liquidating 
agent, offers a composition or extension to creditors or makes a bulk 
sale;
    (3) Any proceeding, suit or action at law, in equity, or under any 
of the provisions of Title 11 of the United States Bankruptcy Code [11 
U.S.C. 101 et seq.] or amendments thereto for reorganization, 
composition, extension, arrangements, receivership, liquidation or 
dissolution is begun by or against the obligor;
    (4) A receiver of any property of the obligor is appointed under 
any jurisdiction at law or in equity; or
    (5) The obligor fails to take proper care of or abandons the 
property being financed by the note.
    (f) The Plan receives adequate security for the note. For purposes 
of this exemption, the term ``adequate security'' means that the note 
is secured by a perfected security interest in the property purchased 
by the obligor on the note so that if the security is foreclosed upon, 
or otherwise disposed of, in default of repayment of the loan, the 
value and liquidity of the security is such that it may reasonably be

[[Page 40694]]

anticipated that loss of principal or interest will not result. In no 
event shall ``adequate security'' mean an interest in intangible 
personal property, such as, but not limited to, accounts, contract 
rights, documents, instruments, chattel paper, and general intangibles.
    (g) Insurance against loss or damage to the collateral from fire or 
other hazards will be procured and maintained by the obligor until the 
note is repaid or repurchased by the employer or affiliate from which 
the Plan originally acquired the note, and the proceeds from such 
insurance will be assigned to the Plan.
    (h) Repayment must be provided for in the following manner:

    (1) Where the note is secured by heavy equipment, the term of the 
note shall in no event exceed 60 months. For purposes of this 
exemption, heavy equipment shall include machinery sold by equipment 
distributors such as, but not limited to, earth moving, material 
handling, pipe laying, power generation, and construction machinery 
manufactured according to standard specifications, but shall not 
include such equipment which has been specifically designed and 
manufactured to a user's specifications and which cannot reasonably be 
resold in the ordinary course of the equipment distributor's business;
    (2) Where the note is secured by passenger automobiles and light-
duty highway motor vehicles, the term of the note shall in no event 
exceed 48 months. For purposes of this exemption, passenger automobiles 
and light-duty highway motor vehicles are defined as vehicles which 
have a gross weight of 10,000 pounds or less, are propelled by means of 
their own motor and are a type used for highway transportation; and
    (3) Where the note is secured by tangible personal property, other 
than heavy equipment or motor vehicles described in paragraph (h)(1) 
and (2) of this section, the term of the note shall in no event exceed 
36 months.
    (i) All records, information and data required to be maintained 
which relate to Plan investments in customer notes covered by this 
exemption shall be unconditionally available at the customary location 
for examination during normal business hours by:

    (1) The Department of Labor,
    (2) The Internal Revenue Service,
    (3) Plan participants and beneficiaries, or
    (4) Any duly authorized employee or representative of a person 
described in subparagraph (1) through (3) above.

Section III. Definitions

    For purposes of this exemption, the following definitions shall 
apply:

    (a) The terms, ``affiliate'' or ``affiliates,'' mean, with 
respect to an employer of employees covered by the Plan, any 
corporation that is, at the time the Plan acquires a customer note, 
a member of a controlled group of corporations (as defined in 
section 407(d)(7) of the Act and section 1563(a) of the Code), along 
with AMG or any other adopting employer.
    (b) The term ``customer note,'' means a two-party instrument, 
executed along with a security agreement for tangible personal 
property, which is accepted and held in connection with, and in the 
normal course of, an employer's (or affiliate's) primary business 
activity as a seller of such property. A two-party instrument is a 
promissory instrument used in connection with an extension of credit 
in which one party (the maker) promises to pay a second party (the 
payee) a sum of money.
    (c) The term ``Independent Fiduciary'' means a person or entity 
which is qualified to serve in that capacity (i.e., knowledgeable as 
to the duties and responsibilities as a fiduciary under the Act and 
knowledgeable as to the subject transaction) and which is 
independent of the party in interest engaging in the transaction and 
its affiliates.
    (d) The terms ``employer'' or ``adopting employer'' mean those 
entities which currently sponsor, or in the future will sponsor, the 
Plan and who have, or will have, employees that are participants in 
the Plan, and are considered an ``employer'' as that term is defined 
in section 3(5) of the Act.

    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 May 5, 2003 
at 68 FR 23778.
    Written Comments: The Department received one written comment with 
respect to the Notice which was submitted by the applicant (AMG). The 
applicant states that in Subsection (a) of Section III (Definitions) of 
the Notice, the terms ``affiliate'' or ``affiliates'' were defined, 
with respect to an employer of employees covered by the Plan, as:

    any corporation that is, at the time the Plan acquires a 
customer note, a member of a controlled group of corporations (as 
defined in 407(d)(7) of the Act and section 1563(a) of the Code), 
along with AMG and any other adopting employer. [emphasis added]

    In this regard, the applicant represents that only two employers 
that have adopted the Plan are part of a controlled group. The 
remaining companies, while related, do not have the requisite level of 
common ownership to constitute a controlled group, as described in the 
definition noted above. Thus, in order to include other adopting 
employers of the Plan that are not currently within a controlled group 
along with AMG, the applicant requests that the word ``and'' be changed 
to ``or'' in the last phrase of the definition of the terms 
``affiliate'' or ``affiliates'' in Section III(a) of the exemption.
    The Department acknowledges the applicant's comment and has revised 
the definition of ``affiliate'' in Section III(a) of the exemption to 
reflect the applicant's request.
    No other comments, nor any requests for a hearing, were received by 
the Department. Accordingly, the Department has determined to grant the 
exemption, as modified.

FOR FURTHER INFORMATION CONTACT: Mr. Brian J. Buyniski of the 
Department, telephone (202) 693-8545. (This is not a toll-free number.)

Lehman Brothers Holding Inc. (LBHI) and Lehman Brothers Inc. (LBI), et 
al. (collectively, the Applicants) Located in New York, NY

[Prohibited Transaction Exemption 2003-22; Exemption Application No. D-
11164]

Exemption

Section I. Covered Transactions

    The restrictions of section 406 of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1) of the Code,\1\ shall not apply, effective April 
16, 2003, to the purchase of any securities by LBHI and LBI and their 
affiliate (collectively the Asset Manager), on behalf of employee 
benefit plans (Client Plans), including Client Plans investing in a 
pooled fund (the Pooled Fund), for which the Asset Manager acts as a 
fiduciary, from any person other than the Asset Manager or an affiliate 
thereof, during the existence of an underwriting or selling syndicate 
with respect to such securities, where LBI and its affiliates 
(collectively, the Affiliated Broker-Dealer) are a manager or member of 
such syndicate, provided that the following conditions are satisfied:
---------------------------------------------------------------------------

    \1\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to the 
corresponding provisions of Title II of the Code.
---------------------------------------------------------------------------

    (a) The securities to be purchased are--
    (1) Either:
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.) or, if exempt from such 
registration requirement, are (A) issued or guaranteed by the United 
States or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States, (B) issued by a bank, (C) exempt 
from such registration requirement pursuant to a

[[Page 40695]]

federal statute other than the 1933 Act, or (D) are the subject of a 
distribution and are of a class which is required to be registered 
under section 12 of the Securities Exchange Act of 1934 (the 1934 Act) 
(15 U.S.C. 781), and the issuer of which has been subject to the 
reporting requirements of section 13 of the 1934 Act (15 U.S.C. 78m) 
for a period of at least 90 days immediately preceding the sale of 
securities and has filed all reports required to be filed thereunder 
with the Securities and Exchange Commission (SEC) during the preceding 
12 months; or
    (ii) Part of an issue that is an ``Eligible Rule 144A Offering,'' 
as defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the 
Eligible Rule 144A Offering is of equity securities, the offering 
syndicate shall obtain a legal opinion regarding the adequacy of the 
disclosure in the offering memorandum;
    (2) Purchased prior to the end of the first day on which any sales 
are made, at a price that is not more than the price paid by each other 
purchaser of securities in that offering or in any concurrent offering 
of the securities, except that --
    (i) If such securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of securities in that offering or in any concurrent offering of the 
securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, provided that the interest rates 
on comparable debt securities offered to the public subsequent to the 
first day and prior to the purchase are less than the interest rate of 
the debt securities being purchased; and
    (3) Offered pursuant to an underwriting or selling agreement under 
which the members of the syndicate are committed to purchase all of the 
securities being offered, except if--
    (i) Such securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of such securities has been in continuous operation 
for not less than three years, including the operation of any 
predecessors, unless--
    (1) Such securities are non-convertible debt securities rated in 
one of the four highest rating categories by at least one nationally 
recognized statistical rating organization, i.e., Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors (collectively, the 
Rating Organizations); or
    (2) Such securities are issued or fully guaranteed by a person 
described in paragraph (a)(1)(i)(A) of Section I of this exemption; or
    (3) Such securities are fully guaranteed by a person who has issued 
securities described in paragraphs (a)(1)(i)(B), (C), or (D) of Section 
I, and who has been in continuous operation for not less than three 
years, including the operation of any predecessors.
    (c) The amount of such securities to be purchased by the Asset 
Manager on behalf of a Client Plan does not exceed three percent of the 
total amount of the securities being offered. Notwithstanding the 
foregoing, the aggregate amount of any securities purchased with assets 
of all Client Plans managed by the Asset Manager (or with respect to 
which the Asset Manager renders investment advice within the meaning of 
29 CFR 2510.3-21(c)) does not exceed:
    (1) 10 percent of the total amount of any equity securities being 
offered;
    (2) 35 percent of the total amount of any debt securities being 
offered that are rated in one of the four highest rating categories by 
at least one of the Rating Organizations; or
    (3) 25 percent of the total amount of any debt securities being 
offered that are rated in the fifth or sixth highest rating categories 
by at least one of the Rating Organizations; and
    (4) If purchased in an Eligible Rule 144A Offering, the total 
amount of the securities being offered for purposes of determining the 
percentages for (1)-(3) above is the total of:
    (i) The principal amount of the offering of such class sold by 
underwriters or members of the selling syndicate to ``qualified 
institutional buyers'' (QIBs), as defined in SEC Rule 144A (17 CFR 
230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class in any 
concurrent public offering.
    (d) The consideration to be paid by the Client Plan in purchasing 
such securities does not exceed three percent of the fair market value 
of the total net assets of the Client Plan, as of the last day of the 
most recent fiscal quarter of the Client Plan prior to such 
transaction.
    (e) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit the Asset Manager or an affiliate.
    (f) The Affiliated Broker-Dealer does not receive, either directly, 
indirectly, or through designation, any selling concession or other 
consideration that is based upon the amount of securities purchased by 
Client Plans pursuant to this exemption. In this regard, the Affiliated 
Broker-Dealer may not receive, either directly or indirectly, any 
compensation that is attributable to the fixed designations generated 
by purchases of securities by the Asset Manager on behalf of its Client 
Plans.
    (g)(1) The amount the Affiliated Broker-Dealer receives in 
management, underwriting or other compensation is not increased through 
an agreement, arrangement, or understanding for the purpose of 
compensating the Affiliated Broker-Dealer for foregoing any selling 
concessions for those securities sold pursuant to this exemption. 
Except as described above, nothing in this paragraph shall be construed 
as precluding the Affiliated Broker-Dealer from receiving management 
fees for serving as manager of the underwriting or selling syndicate, 
underwriting fees for assuming the responsibilities of an underwriter 
in the underwriting or selling syndicate, or other consideration that 
is not based upon the amount of securities purchased by the Asset 
Manager on behalf of Client Plans pursuant to this exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the Asset Manager 
a written certification, signed by an officer of the Affiliated Broker-
Dealer, stating the amount that the Affiliated Broker-Dealer received 
in compensation during the past quarter, in connection with any 
offerings covered by this exemption, was not adjusted in a manner 
inconsistent with Section I(e), (f), or (g) of this exemption.
    (h) In the case of a single Client Plan, the covered transaction is 
performed under a written authorization executed in advance by an 
independent fiduciary (Independent Fiduciary) of the Client Plan.
    (i) Prior to the execution of the written authorization described 
in paragraph (h) above of this Section I, the following information and 
materials must be provided in hard copy or in electronic form by the 
Asset Manager to the Independent Fiduciary of each single Client Plan:
    (1) A copy of the notice of proposed exemption and of the final 
exemption as published in the Federal Register; and
    (2) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary requests.
    (j) Subsequent to an Independent Fiduciary's initial authorization 
permitting the Asset Manager to engage in the covered transactions on 
behalf of a single Client Plan, the Asset Manager will continue to be 
subject to the

[[Page 40696]]

requirement to provide any reasonably available information regarding 
the covered transactions that the Independent Fiduciary requests.
    (k) In the case of existing plan investors in a Pooled Fund, such 
Pooled Fund may not engage in any covered transactions pursuant to this 
exemption, unless the Asset Manager has provided the written 
information described below to the Independent Fiduciary of each plan 
participating in the Pooled Fund. The following information and 
materials shall be provided in hard copy or in electronic form not less 
than 45 days prior to the Asset Manager's engaging in the covered 
transactions on behalf of the Pooled Fund pursuant to the exemption:
    (1) A notice of the Pooled Fund's intent to purchase securities 
pursuant to this exemption and a copy of the notice of proposed 
exemption and of the final exemption as published in the Federal 
Register;
    (2) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary requests; and
    (3) A termination form expressly providing an election for the 
Independent Fiduciary to terminate the plan's investment in the Pooled 
Fund without penalty to the plan. Such form shall include instructions 
specifying how to use the form.
    Specifically, the instructions will explain that the plan has an 
opportunity to withdraw its assets from the Pooled Fund for a period at 
least 30 days after the plan's receipt of the initial notice described 
in paragraph (1) of this Section I(k) above and that the failure of the 
Independent Fiduciary to return the termination form by the specified 
date shall be deemed to be an approval by the plan of its participation 
in covered transactions as a Pooled Fund investor. Further, the 
instructions will identify the Asset Manager and its Affiliated Broker-
Dealer and state that this exemption may be unavailable unless the 
Independent Fiduciary is, in fact, independent of those persons. Such 
fiduciary must advise the Asset Manager, in writing, if it is not an 
``Independent Fiduciary,'' as that term is defined in Section II(g) of 
this exemption.
    For purposes of this paragraph, the requirement that the 
authorizing fiduciary be independent of the Asset Manager shall not 
apply in the case of an in-house plan sponsored by the Applicants or an 
affiliate thereof. However, in-house plans must notify the Asset 
Manager, as provided above.
    (1) In the case of a plan whose assets are proposed to be invested 
in a Pooled Fund subsequent to implementation of the procedures to 
engage in the covered transactions, the plan's investment in the Pooled 
Fund is subject to the prior written authorization of an Independent 
Fiduciary, following the receipt by the Independent Fiduciary of the 
materials described in Section I(k)(1) and (2). For purposes of this 
paragraph, the requirement that the authorizing fiduciary be 
independent of the Asset Manager shall not apply in the case of an in-
house plan sponsored by the Applicants or an affiliate thereof.
    (m) Subsequent to an Independent Fiduciary's initial authorization 
of a plan's investment in a Pooled Fund that engages in the covered 
transactions, the Asset Manager will continue to be subject to the 
requirement to provide any reasonably available information regarding 
the covered transactions that the Independent Fiduciary requests.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the Asset 
Manager shall:
    (1) Furnish the Independent Fiduciary of each single Client Plan, 
and of each plan investing in a Pooled Fund, with a report (which may 
be provided electronically) disclosing all securities purchased on 
behalf of that Client Plan or Pooled Fund pursuant to this exemption 
during the period to which such report relates, and the terms of the 
transactions, including:
    (i) The type of security (including the rating of any debt 
security);
    (ii) The price at which the securities were purchased;
    (iii) The first day on which any sale was made during this 
offering;
    (iv) The size of the issue;
    (v) The number of securities purchased by the Asset Manager for the 
specific Client Plan or Pooled Fund;
    (vi) The identity of the underwriter from whom the securities were 
purchased;
    (vii) The spread on the underwriting;
    (viii) The price at which any such securities purchased during the 
period were sold; and
    (ix) The market value at the end of such period of each security 
purchased during the period and not sold;
    (2) Provide to the Independent Fiduciary in the quarterly report a 
representation that the Asset Manager has received a written 
certification signed by an officer of the Affiliated Broker-Dealer, as 
described in paragraph (g)(2) of this Section I, affirming that, as to 
each offering covered by this exemption during the past quarter, the 
Affiliated Broker-Dealer acted in compliance with Section I(e), (f), 
and (g) of this exemption, and that a copy of such certification will 
be provided to the Independent Fiduciary upon request;
    (3) Disclose to the Independent Fiduciary that, upon request, any 
other reasonably available information regarding the covered 
transactions that the Independent Fiduciary requests will be provided, 
including, but not limited to:
    (i) The date on which the securities were purchased on behalf of 
the plan;
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans and Pooled Funds; and
    (iii) The identity of all members of the underwriting syndicate;
    (4) Disclose to the Independent Fiduciary in the quarterly report, 
any instance during the past quarter where the Asset Manager was 
precluded for any period of time from selling a security purchased 
under this exemption in that quarter because of its status as an 
affiliate of the Affiliated Broker-Dealer and the reason for this 
restriction;
    (5) Provide explicit notification, prominently displayed in each 
quarterly report, to the Independent Fiduciary of a single Client Plan, 
that the authorization to engage in the covered transactions may be 
terminated, without penalty, by the Independent Fiduciary on no more 
than five days' notice by contacting an identified person; and
    (6) Provide explicit notification, prominently displayed in each 
quarterly report, to the Independent Fiduciary of a plan investing in a 
Pooled Fund, that the Independent Fiduciary may terminate investment in 
the Pooled Fund, without penalty, by contacting an identified person.
    (o) Each single Client Plan shall have total net assets with a 
value of at least $50 million. In addition, in the case of a 
transaction involving an Eligible Rule 144A Offering on behalf of a 
single Client Plan, each such Client Plan shall have at least $100 
million in securities, as determined pursuant to SEC Rule 144A (17 CFR 
230.144A). In the case of a Pooled Fund, the $50 million requirement 
will be met if 50 percent or more of the units of beneficial interest 
in such Pooled Fund are held by plans having total net assets with a 
value of at least $50 million. For purchases involving an Eligible Rule 
144A Offering on behalf of a Pooled Fund, the $100 million requirement 
will be met if 50 percent or more of the units of beneficial interest 
in such Pooled Fund are held by plans having at least $100 million in 
assets and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).

[[Page 40697]]

    For purposes of the net asset tests described above, where a group 
of Client Plans is maintained by a single employer or controlled group 
of employers, as defined in section 407(d)(7) of the Act, the $50 
million net asset requirement or the $100 million net asset requirement 
may be met by aggregating the assets of such Client Plans, if the 
assets are pooled for investment purposes in a single master trust.
    (p) The Asset Manager qualifies as a ``qualified professional asset 
manager,'' as that term is defined under Part V(a) of PTE 84-14 (49 FR 
9494, 9506, March 13, 1984) and, in addition, has, as of the last day 
of its most recent fiscal year, total client assets under its 
management and control in excess of $5 billion and shareholders' or 
partners' equity in excess of $1 million.
    (q) No more than 20 percent of the assets of a Pooled Fund, at the 
time of a covered transaction, is comprised of assets of employee 
benefit plans maintained by the Asset Manager, the Affiliated Broker-
Dealer, or an affiliate for their own employees, for which the Asset 
Manager, the Affiliated Broker-Dealer, or an affiliate exercises 
investment discretion.
    (r) The Asset Manager and the Affiliated Broker-Dealer maintain, or 
cause to be maintained, for a period of six years from the date of any 
covered transaction such records as are necessary to enable the persons 
described in Section I(s) of this exemption to determine whether the 
conditions of this exemption have been met, except that--
    (1) No party in interest with respect to a Client Plan, other than 
the Asset Manager and the Affiliated Broker-Dealer, shall be subject to 
a civil penalty under section 502(i) of the Act or the sanctions 
imposed by section 4975(a) and (b) of the Code, if such records are not 
maintained, or not available for examination, as required by Section 
I(s); and
    (2) A prohibited transaction shall not be considered to have 
occurred if, due to circumstances beyond the control of the Asset 
Manager or the Affiliated Broker-Dealer, such records are lost or 
destroyed prior to the end of the six-year period.
    (s)(1) Except as provided in subparagraph (2) of this Section I(s) 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in Section I(r) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC;
    (ii) Any fiduciary of a Client Plan, or any duly authorized 
employee or representative of such fiduciary;
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a Client Plan, or 
any authorized employee or representative of these entities; or
    (iv) 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 subparagraphs (s)(1)(ii)-(iv) 
of this Section I shall be authorized to examine trade secrets of the 
Asset Manager or the Affiliated Broker-Dealer, or commercial or 
financial information which is privileged or confidential; and
    (3) Should the Asset Manager or the Affiliated Broker-Dealer refuse 
to disclose information on the basis that such information is exempt 
from disclosure pursuant to Section I(s)(2) above, the Asset Manager 
shall, by the close of the (thirtieth) (30th) day following the 
request, provide a written notice advising that person of the reasons 
for the refusal and that the Department may request such information.

Section II. Definitions

    (a) The term ``Asset Manager'' means any asset management affiliate 
of any Applicant (as ``affiliate'' is defined in Section II(c)) that 
meets the requirements of this exemption.
    (b) The term ``Affiliated Broker-Dealer'' means any broker-dealer 
affiliate of any Applicant (as ``affiliate'' is defined in paragraph 
(c) of this Section II) that meets the requirements of this exemption. 
Such Affiliated Broker-Dealer may participate in an underwriting or 
selling syndicate as a manager or member. The term ``manager'' means 
any member of an underwriting or selling syndicate who, either alone or 
together with other members of the syndicate, is authorized to act on 
behalf of the members of the syndicate in connection with the sale and 
distribution of the securities being offered, or who receives 
compensation from the members of the syndicate for its services as a 
manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative (as 
defined in section 3(15) of the Act) of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``Client Plan'' means an employee benefit plan that is 
subject to the fiduciary responsibility provisions of the Act and whose 
assets are under the management of the Asset Manager, including a plan 
investing in a Pooled Fund (as ``Pooled Fund'' is defined in Section 
II(f) below).
    (f) The term ``Pooled Fund'' means a common or collective trust 
fund or pooled investment fund maintained by the Asset Manager.
    (g)(1) The term ``Independent Fiduciary'' means a fiduciary of a 
Client Plan who is unrelated to, and independent of, the Asset Manager 
and the Affiliated Broker-Dealer. For purposes of this exemption, a 
Client Plan fiduciary will be deemed to be unrelated to, and 
independent of, the Asset Manager and the Affiliated Broker-Dealer if 
such fiduciary represents that neither such fiduciary, nor any 
individual responsible for the decision to authorize or terminate 
authorization for transactions described in Section I, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Asset Manager or the Affiliated 
Broker-Dealer and represents that such fiduciary shall advise the Asset 
Manager if those facts change.
    (2) Notwithstanding anything to the contrary in this Section II(g), 
a fiduciary is not independent if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Asset Manager or the Affiliated 
Broker-Dealer;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from the Asset Manager or the 
Affiliated Broker-Dealer for his or her own personal account in 
connection with any transaction described in this exemption;
    (iii) Any officer, director, or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of the Asset Manager, 
responsible for the transactions described in Section I, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Client Plan sponsor or of the 
fiduciary responsible for the

[[Page 40698]]

decision to authorize or terminate authorization for transactions 
described in Section I. However, if such individual is a director of 
the Client Plan sponsor or of the responsible fiduciary, and if he or 
she abstains from participation in (A) the choice of the Plan's 
investment manager/adviser and (B) the decision to authorize or 
terminate authorization for transactions described in Section I, then 
this Section II(g)(2)(iii) shall not apply.
    (3) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    (4) In the case of existing Client Plans in a Pooled Fund, at the 
time the Asset Manager provides such Client Plans with initial notice 
pursuant to this exemption, the Asset Manager will notify the 
fiduciaries of such Client Plans that they must advise the Asset 
Manager, in writing, if they are not independent, within the meaning of 
this Section II(g).
    (h) The term ``security'' shall have the same meaning as defined in 
section 2(36) of the Investment Company Act of 1940, as amended (the 
1940 Act) (15 U.S.C. 80a-2(36) (1996)). For purposes of this exemption, 
mortgage-backed or other asset-backed securities rated by a Rating 
Organization will be treated as debt securities.
    (i) The term ``Eligible Rule 144A Offering'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act.
    (j) The term ``qualified institutional buyer'' or ``QIB'' shall 
have the same meaning as defined in SEC Rule 144A (SEC Rule 144A) (17 
CFR 230.144A(a)(1)) under the Securities Act of 1933.
    (k) The term ``Rating Organizations'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors.

EFFECTIVE DATE: This exemption is effective as of April 16, 2003.
    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 April 16, 2003 at 68 FR 
18687.

FOR FURTHER INFORMATION CONTACT: Ms. Silvia Quezada of the Department 
at (202) 693-8553. (This is not a toll-free number.)

Goldman, Sachs & Co. and Its Affiliates Located in New York, New York

[Prohibited Transaction Exemption 2003-23; Exemption Application No. D-
11169]

Exemption

    The restrictions of sections 406(a)(1)(A) through (D) of the Act 
and the sanctions resulting from 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, in the context of a 
portfolio liquidation or restructuring, between (i) Goldman, Sachs & 
Co. (Goldman) and its current and future affiliates, including certain 
foreign broker-dealers or banks (the Foreign Affiliates, as defined in 
Section III below), (collectively, the Applicant) and (ii) employee 
benefit plans (the Plans) with respect to which the Applicant is a 
party in interest, provided that the conditions set forth in Section II 
are satisfied.

Section II--Conditions

    A. The Applicant customarily purchases and sells securities for its 
own account in the ordinary course of its business as a broker-dealer 
or bank;
    B. The Applicant (including an affiliate) does not have 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, nor renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets.
    Notwithstanding the foregoing, the Applicant may be a directed 
trustee (as defined in Section III below) with respect to the Plan 
assets involved in the transaction.
    In addition, although the Applicant does not have discretionary 
authority or control over such Plan assets at the time of the 
transaction and has not used its discretion to appoint the transition 
broker-dealer, it may act as a fiduciary with respect to the Plan 
assets involved in the transaction, solely as: (i) The investment 
manager of such assets to be managed as an Index or Model-Driven Fund; 
or (ii) the investment manager of such assets who supplies a list of 
securities or other investments to be purchased, which list is prepared 
without regard to the identity of the broker-dealer and without 
reference to the portfolio being liquidated or restructured, and is 
substantially the same list that would be provided to other similarly 
situated investors with substantially similar investment guidelines and 
objectives, or is substantially similar to the investments in existing 
portfolios managed in the same style.
    Lastly, a transaction will not fail to meet the requirements of 
this section if the Applicant is being terminated as a manager of the 
Plan assets involved in the transaction, its investment discretion is 
terminated prior to the commencement of the portfolio liquidation or 
restructuring, and the Applicant has not used its discretion to appoint 
the transition broker-dealer;
    C. The transaction is a purchase or sale, for no consideration 
other than cash;
    D. The terms of any transaction are at least as favorable to the 
Plan as those obtainable in a comparable arm's length transaction with 
an unrelated party;
    E. An Independent Fiduciary has given prior approval that the 
transaction may be effectuated as a principal transaction and at a 
price that--
    (1) For an equity security, is specified in advance by the 
Independent Fiduciary and is a stated dollar amount, or is based on an 
objective measure (as of a specified date or dates), including, but not 
limited to, the closing price, the opening price, or the volume-
weighted average price; or
    (2) For a fixed income security, is a stated dollar amount, or is 
within the bid and asked spread, as of the close of the relevant market 
(or another predetermined time on a specified date or dates), as 
reported by an independent third party reporting service or a publicly 
available electronic exchange or trading system;
    F. In the case where the price for any transaction is not based on 
an objective measure, the Independent Fiduciary has given prior 
approval for the transaction, specifying whether the transaction is to 
be agency or principal, either on a security-by-security basis, or 
based on the whole portfolio or an identifiable part of the portfolio 
(such as all debt securities, all equity securities, all domestic 
securities, or the like);
    G. All purchases and sales executed on a principal basis are 
effected within two days following the Independent Fiduciary's 
direction to purchase or sell a given security--except that, with the 
approval of the Independent Fiduciary, the Applicant may extend such 
initial period for a time not exceeding two additional days, on the 
same terms;
    H. The Independent Fiduciary is furnished with confirmations 
including the relevant information required under Rule 10b-10 of the 
Securities Exchange Act of 1934 (the 1934 Act), to the extent required 
under Rule 10b-10, as well as a report, within five business days after 
the transaction is completed, containing the following information with 
respect to each security:
    (1) The identity of the security;

[[Page 40699]]

    (2) The date on which the transaction occurred;
    (3) The quantity and price of the securities involved; and
    (4) Whether the transaction was executed with the Applicant as 
principal or agent;
    I. Each Plan shall have total net assets with a value of at least 
$100 million. For purposes of the net assets test, where a group of 
Plans is maintained by a single employer or controlled group of 
employers, as defined in section 407(d)(7) of the Act, the $100 million 
net assets requirement may be met by aggregating the assets of such 
Plans, if the assets are pooled for investment purposes in a single 
master trust;
    J. The Applicant complies with all applicable securities or banking 
laws relating to the transaction;
    K. Any 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 transaction covered by the exemption;
    L. Any Foreign Affiliate, in connection with any transaction 
covered by the 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 (SEC) interpretations thereof, providing for 
foreign affiliates a limited exemption from U.S. broker-dealer 
registration requirements;
    M. 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. In 
this regard, the Foreign Affiliate must (i) agree to submit to the 
jurisdiction of the United States; (ii) agree to appoint an agent for 
service of process in the United States, which may be an affiliate (the 
Process Agent); and (iii) consent to service of process on the Process 
Agent;
    N. The Applicant 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 O, below, 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 
Applicant, 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 O; and
    (2) This record-keeping condition shall not be violated if, due to 
circumstances beyond the Applicant's control, such records are lost or 
destroyed prior to the end of the six year period; and
    O. Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Applicant makes the records referred to in 
Paragraph N, above, unconditionally available within the United States 
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 SEC; (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 Items (2) through (5) of this subsection is authorized to 
examine the trade secrets of the Applicant, or commercial or financial 
information which is privileged or confidential.

Section III--Definitions

    A. The term ``Goldman'' means Goldman, Sachs & Co. and its current 
and future affiliates, including the Foreign Affiliates (as defined in 
Paragraph C, below); each domestic affiliate must be one of the 
following: (i) A broker-dealer registered under the 1934 Act; (ii) a 
reporting dealer who makes primary markets in securities of the United 
States Government or of any agency of the United States Government 
(``Government securities'') and reports daily to the Federal Reserve 
Bank of New York its positions with respect to Government securities 
and borrowings thereon; or (iii) a bank supervised by the United States 
or a State. Goldman, including its current and future affiliates 
(including the Foreign Affiliates), are collectively referred to herein 
as ``the Applicant.''
    B. The term ``affiliate'' shall include: (1) Any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such person; (2) any officer, 
director, or partner, employee or relative (as defined in section 3(15) 
of the Act) of such person; and (3) any corporation or partnership of 
which such person is an officer, director 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.
    C. The term ``Foreign Affiliate'' means an affiliate of Goldman 
that is subject to regulation as a broker-dealer or bank by: (1) The 
Securities and Futures Authority or the Financial Services Authority in 
the United Kingdom, (2) the Federal Authority for Financial Services 
Supervision, i.e., der Bundesanstalt fuer Finanzdienstleistungsaufsicht 
(the BAFin) in Germany, (3) the Ministry of Finance and/or the Tokyo 
Stock Exchange in Japan, (4) the Ontario Securities Commission and/or 
the Investment Dealers Association, or the Office of the Superintendent 
of Financial Institutions, in Canada, (5) the Swiss Federal Banking 
Commission in Switzerland, or (6) the Australian Prudential Regulation 
Authority or the Australian Securities & Investments Commission, and/or 
the Australian Stock Exchange Limited, in Australia, or any 
governmental regulatory authority that is a successor in interest to 
any such regulator.
    D. The term ``security'' shall include equities, fixed income 
securities, options on equity or 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.
    E. The term ``index'' means a securities index that represents the 
investment performance of a specific segment of the public market for 
equity or debt securities in the United States and/or foreign 
countries, but only if
    (1) The organization creating and maintaining the index is--
    (i) Engaged in the business of providing financial information, 
evaluation, advice, or securities brokerage services to institutional 
clients,
    (ii) A publisher of financial news or information, or
    (iii) A public securities exchange or association of securities 
dealers;
    (2) The index is created and maintained by an organization 
independent of the Applicant; and
    (3) The index is a generally accepted standardized index of 
securities that is not specifically tailored for the use of the 
Applicant.
    F. The term ``Index Fund'' means any investment fund, account, or 
portfolio trusteed or managed by the Applicant, in which one or more 
investors invest, and--
    (1) Which is designed to track the rate of return, risk profile, 
and other characteristics of an independently maintained securities 
index (as ``index'' is defined in Paragraph E, above) by either (i) 
replicating the same

[[Page 40700]]

combination of securities that compose such index, or (ii) sampling the 
securities that compose such index based on objective criteria and 
data;
    (2) For which the Applicant does not use its discretion, or data 
within its control, to affect the identity or amount of securities to 
be purchased or sold;
    (3) That contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (4) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund that is intended to 
benefit the Applicant or any party in which the Applicant may have an 
interest.
    G. The term ``Model-Driven Fund'' means any investment fund, 
account, or portfolio trusteed or managed by the Applicant, in which 
one or more investors invest, and--
    (1) Which is composed of securities, the identity of which and the 
amount of which, are selected by a computer model that is based on 
prescribed objective criteria using independent third party data, not 
within the control of the Manager, to transform an Index (as defined in 
Paragraph E, above);
    (2) Which contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (3) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund, or the utilization of 
any specific objective criteria, that is intended to benefit the 
Applicant or any party in which the Applicant may have an interest.
    H. The term ``Plan'' means an employee benefit plan that is subject 
to the fiduciary responsibility provisions of the Act.
    I. The term ``Independent Fiduciary'' means a fiduciary of a Plan 
who is unrelated to, and independent of, the Applicant. For purposes of 
the exemption, a Plan fiduciary will be deemed to be unrelated to, and 
independent of, the Applicant if such fiduciary represents that neither 
such fiduciary, nor any individual responsible for the decision to 
authorize or terminate authorization for transactions described in 
Section I, is an officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the 
Applicant and represents that such fiduciary shall advise the Applicant 
if those facts change.
    (1) Notwithstanding anything to the contrary in this Section III, 
I, a fiduciary is not independent if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Applicant;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from the Applicant for his or her 
own personal account in connection with any transaction described in 
the exemption;
    (iii) Any officer, director, or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of the Applicant, 
responsible for the transactions described in Section I, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Plan sponsor or the fiduciary 
responsible for the decision to authorize or terminate authorization 
for transactions described in Section I. However, if such individual is 
a director of the Plan sponsor or the responsible fiduciary, and if he 
or she abstains from participation in (A) the choice of the Plan's 
broker-dealer or bank executing the transactions covered herein, and 
(B) the decision to authorize or terminate authorization for 
transactions described in Section I, then Section III, I(1)(iii) shall 
not apply.
    (2) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    J. The term ``directed trustee'' means a Plan trustee whose powers 
and duties with respect to any assets of the Plan involved in the 
portfolio liquidation or restructuring are limited to (i) the provision 
of nondiscretionary trust services to the Plan, and (ii) duties imposed 
on the trustee by any provision or provisions of the Act or the Code. 
The term ``nondiscretionary trust services'' means custodial services 
and services ancillary to custodial services, none of which services is 
discretionary. For purposes of the exemption, a person who is otherwise 
a directed trustee will not fail to be a directed trustee solely by 
reason of having been delegated, by the sponsor of a master or 
prototype Plan, the power to amend such Plan.


EFFECTIVE DATE: This exemption is effective as of February 6, 2003.
    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 April 16, 2003 at 68 FR 
18698.

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption (the Proposal). The comment was submitted 
by the Applicant, who requested clarification of a certain statement in 
Item 3 of the Summary of Facts and Representations in the Proposal. The 
Applicant wished to revise the first full sentence in the first column 
of 68 FR at 18701 as follows (note bracketed deletions and italicized 
additions):

    The Applicant [delete ``believes''] is concerned that some of 
its Plan clients may believe that the principal transactions at 
issue may fall outside the scope of relief provided by PTE 75-1 (40 
FR 50845, October 31, 1975), Part II,[footnote 32] because that 
class exemption is unavailable where the broker-dealer's affiliate 
is the trustee of a Plan, even if only a directed trustee, and is 
unavailable where the broker-dealer or an affiliate thereof is 
otherwise a fiduciary with respect to the Plan, such as an asset 
manager.

    The Department acknowledges the Applicant's clarification to the 
record.


FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of

[[Page 40701]]

whether the transaction is in fact a prohibited transaction; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 1st day of July, 2003.
Ivan Strasfeld,
Director of Exemption Determinations Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 03-17095 Filed 7-7-03; 8:45 am]

BILLING CODE 4510-29-P