76292 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

1Pursuant to 29 CFR 2510.3–2(d), the IRAs are

not within the jurisdiction of Title I of the Act.

However, there is jurisdiction under Title II of the

Act, pursuant to section 4975 of the Code.

2The applicants represent that, at the same time

the Sea-Dog Plan purchased the Property, Sea-Land

purchased the adjacent industrial complex. In this

regard, the Department expresses no opinion herein

as to whether the acquisition and holding of the

Property by the Sea-Dog Plan violated any of the

fiduciary responsibility provisions of Part 4 of Title

I of the Act. Section 404(a)(1) of the Act requires,

among other things, that a fiduciary of a plan act

prudently and solely in the interest of the plan and

its participants and beneficiaries, when making

investment decisions on behalf of the plan.

3The applicants state that Sea-Land is a

‘‘disqualified person’’ with respect to the IRA for

Mark Nysether. Section 4975(e)(2)(G) of the Code

defines the term ‘‘disqualified person’’ to include,

in pertinent part, a corporation of which (or in

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10901 and D–10902,

et al.]

Proposed Exemptions; IRAs for Eldon

Nysether and Mark Nysether (the IRAs)

AGENCY: Pension and Welfare Benefits

Administration, Labor

ACTION: Notice of Proposed Exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions from certain of the

prohibited transaction restrictions of the

Employee Retirement Income Security

Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing

Requests

All interested persons are invited to

submit written comments or request for

a hearing on the pending exemptions,

unless otherwise stated in the Notice of

Proposed Exemption, within 45 days

from the date of publication of this

Federal Register Notice. Comments and

requests for a hearing should state: (1)

the name, address, and telephone

number of the person making the

comment or request, and (2) the nature

of the person’s interest in the exemption

and the manner in which the person

would be adversely affected by the

exemption. A request for a hearing must

also state the issues to be addressed and

include a general description of the

evidence to be presented at the hearing.

ADDRESSES: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, NW,

Washington, DC 20210. Attention:

Application No. lll, stated in each

Notice of Proposed Exemption. The

applications for exemption and the

comments received will be available for

public inspection in the Public

Documents Room of the Pension and

Welfare Benefits Administration, U.S.

Department of Labor, Room N–5638,

200 Constitution Avenue, NW,

Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

4975(c)(2) of the Code, and in

accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR

32836, 32847, August 10, 1990).

Effective December 31, 1978, section

102 of Reorganization Plan No. 4 of

1978, 5 U.S.C. App. 1 (1996), transferred

the authority of the Secretary of the

Treasury to issue exemptions of the type

requested to the Secretary of Labor.

Therefore, these notices of proposed

exemption are issued solely by the

Department.

The applications contain

representations with regard to the

proposed exemptions which are

summarized below. Interested persons

are referred to the applications on file

with the Department for a complete

statement of the facts and

representations.

IRAs for Eldon Nysether and Mark

Nysether (the IRAs)

Located in Seattle, Washington

[Application Nos. D–10901 and D–

10902]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 4975(c)(2) of the

Code and in accordance with the

procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847,

August 10, 1990). If the exemption is

granted, the sanctions resulting from the

application of section 4975 of the Code,

by reason of section 4975(c)(1)(A)

through (E) of the Code, shall not apply

to the proposed sale by the IRAs of their

interests in certain improved real

property (the Property) to Sea-Land

Development Corporation (Sea-Land), a

disqualified person with respect to the

IRAs,1 provided that the following

conditions are satisfied: (1) The sale is

a one-time transaction for cash; (2) the

IRAs pay no commissions nor other

expenses relating to the sale; and (3) the

sale price received by the IRAs equals

the Property’s fair market value, as of

the date of the sale, as established by a

qualified, independent appraiser.

Summary of Facts and Representations

1. The two IRAs are individual

retirement accounts, as described under

section 408(a) of the Code. One IRA was

established by Eldon Nysether, the sole

participant. The other IRA was

established by Mark Nysether, the sole

participant. As of November 8, 2000, the

IRAs had total assets of $684,124.26 and

$684,124.26, respectively. The

custodian of both IRAs is The

Commerce Bank of Washington, located

in Seattle, Washington.

2. The Property consists of a currently

unoccupied one-story commercial office

building with approximately 20,300 sq.

ft. on a 2.17 acre lot. It is located in

Skagit Industrial Park, 500 Metcalf

Street, Sedro Woolley, Washington. The

adjacent parcel to the west of the

Property is already owned by Sea-Land.

The adjacent parcel is improved with a

number of buildings that, together, form

an industrial complex.

3. The Property is held as equal

interests by each IRA. Except for a small

amount of cash, the Property consists of

the IRAs’ sole asset. According to the

applicants, the Property was originally

acquired as an investment by the SeaDog Corporation 401(k) Profit Sharing

Plan (the Sea-Dog Plan) from unrelated

parties in 1993 for a total cash purchase

price of $275,000.2 The IRAs obtained

the Property in 1997 in a rollover of

assets as distributions to which the

Nysethers were each entitled as

participants in the Sea-Dog Plan, when

they were informed by the Sea-First

Bank that it would no longer permit real

estate to be held in 401(k) plan accounts

at the bank. At that time, the Property

had an appraised value of $550,000. The

Sea-Dog Corporation, in which Mark

Nysether has a 34.28% ownership

interest and his father Eldon has a

28.15% ownership interest, is a sister

company of Sea-Land, the proposed

purchaser of the Property. Mark

Nysether is also a 50% owner of SeaLand.3

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76293

which) 50 percent or more of the combined voting

power of all classes of stock entitled to vote or the

total value of shares of all classes of stock of such

corporation is owned directly or indirectly, or held

by, a fiduciary of a plan.

The applicants state that Sea-Land is also a

‘‘disqualified person’’ with respect to the IRA for

Eldon Nysether, Mark’s father, despite Eldon’s

having no direct ownership interest in Sea-Land.

Section 4975(e)(4) of the Code, in part, provides

that, for purposes of paragraph (2)(G)(i), there shall

be taken into account indirect stockholdings which

would be taken into account under section 267(c),

the attribution rules under the Code.

4The Department notes that any lease or use of

the Property by a ‘‘disqualified person,’’ as defined

in section 4975(e)(2) of the Code, would be a

separate prohibited transaction under section

4975(c)(1)(D) of the Code.

5For purposes of this exemption, references to

specific provisions of Title I of the Act, unless

otherwise specified, refer to the corresponding

provisions of the Code.

6 ING, ING Bank London or any successor in

interest bank which is subject to the laws of the

United Kingdom and the Netherlands, ING London,

ING Japan, and any broker-dealer that, now or in

the future, is an affiliate of ING which is subject to

regulation under the laws of the United States or

the United Kingdom or Japan are referred to herein

collectively as ING Borrowers or individually as

ING Borrower.

7 ING Institutional, its corporate successors, or

any foreign or domestic affiliate of ING are referred

to herein collectively as IITC.

The applicants represent that, as of

May 5, 2000, the IRAs had received

gross rental income, since acquiring the

Property, in the following amounts:

$26,433.21 to the IRA for Eldon

Nysether and $26,433.22 to the IRA for

Mark Nysether. In regard to certain

expenses relating to the Property, the

IRAs, as of May 5, 2000, had each paid

$6,921.63 in taxes and $2,506.00 for

insurance. The applicants further

represent that the Property has not been

leased to, nor used by, by a disqualified

person with respect to the IRAs, at any

time since being acquired by the IRAs.4

4. The Property has been appraised by

David Parsons & Associates, Inc.,

qualified, independent appraisers

located in Mount Vernon, Washington.

Mr. Parsons, M.A.I., a general appraiser

certified in the State of Washington, and

Roger Lindblom, Associate Appraiser,

estimated that the fair market value of

the Property was $1,334,000, as of July

11, 2000. In their report, Messrs.

Parsons and Lindblom state that they

utilized all three valuation approaches:

Cost, Sales Comparison, and Income,

with greater consideration given to the

latter two approaches. They state that

the Property is a sound strucure, but the

interior needs to be completely

refurbished. The Property is zoned CBD,

which represents the prime commercial

designation for small-to-moderate scale

commercial activities in the area where

the Property is located.

Further, in a subsequent letter dated

November 3, 2000, Mr. Parsons states

that, in making an appraisal of the

Property, he was aware that the adjacent

industrial complex is already owned by

Sea-Land, which rents out its buildings

to approximately 19 different tenants.

Mr. Parsons states that, because most of

these tenants operate businesses with

small offices, there is not deemed a

specific demand for office space from

this complex that may affect the value

of the subject Property. Thus, according

to Mr. Parsons, no premium would be

associated with its purchase by SeaLand.

5. The applicants propose that SeaLand purchase the Property from the

IRAs for an amount in cash equal to the

fair market value of the Property

($1,334,000 as of July 11, 2000), as of

the date of the sale, based upon an

updated, independent appraisal. The

IRAs will pay no commissions nor other

expenses relating to the sale. Each IRA

will receive one-half of the sale

proceeds, in accordance with their onehalf ownership interests in the Property.

The applicants represent that the

proposed exemption is in the best

interests of the IRAs because the sale

will allow the IRAs an opportunity to

divest their respective portfolios of an

illiquid asset. In addition, the sale

proceeds received by each IRA will be

reinvested in other assets that will

increase the diversification of the IRAs’

assets and facilitate the payment of

retirement benefits.

6. In summary, the applicants

represent that the proposed transaction

satisfies the statutory criteria for an

exemption under section 4975(c)(2) of

the Code for the following reasons:

(a) the sale will be a one-time

transaction for cash; (b) the IRAs will

pay no commissions nor other expenses

relating to the sale; (c) the sale price

received by the IRAs will equal the

Property’s fair market value, as of the

date of the sale, as established by a

qualified, independent appraiser; and

(d) the sale will allow the IRAs an

opportunity to divest their respective

portfolios of an illiquid asset, increase

the diversification of the IRAs’ assets by

reinvesting the proceeds of the sale in

other assets, and facilitate the payment

of retirement benefits.

Notice To Interested Persons

Because the Nysethers are the sole

participants in their IRAs, it has been

determined that there is no need to

distribute the notice of proposed

exemption to other interested persons.

Comments and requests for a hearing

with respect to the proposed exemption

are due within 30 days of the date of

publication of this notice in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

ING Barings LLC,

ING Institutional Trust Company and

Affiliates

Located in New York, New York

[Exemption Application No.: D–10908]

Proposed Exemption

Section I—Transactions

The Department of Labor is

considering granting an exemption

under the authority of section 408(a) of

the Act and section 4975(c)(2) of the

Code and in accordance with the

procedures as set forth in 29 C.F.R. Part

2570, Subpart B (55 FR 32836, 32847,

August 10, 1990).5 If the exemption is

granted, effective as of the date of the

publication of the proposed exemption

in the Federal Register, the restrictions

of sections 406(a), 406(b)(1) and (b)(2) of

the Act and the sanctions resulting from

the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A)

through (E) of the Code, shall not apply

to:

(a) the lending of securities to:

(1) ING Barings LLC (ING);

(2) the London branch (ING Bank

London) of ING Bank N.V. or any

successor in interest bank which is

subject to the laws of the United

Kingdom and the Netherlands;

(3) ING Barings Limited (ING

London);

(4) ING Baring Securities (Japan)

Limited (ING Japan); and

(5) any broker-dealer that, now or in

the future, is an affiliate of ING which

is subject to regulation under the laws

of the United States or the United

Kingdom or Japan;6 by employee benefit

plans, including commingled

investment funds holding assets of such

plans (the Client Plan(s)), for which in

connection with securities lending

activities, an affiliate of the ING

Borrowers, the ING Institutional Trust

Company (ING Institutional), its

corporate successors, or any foreign or

domestic affiliate of ING,7 acts as a

securities lending agent (or sub-agent) or

as a directed trustee or custodian for

such Client Plans under either of two

76294 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

8The Department, herein, is not providing

exemptive relief for securities lending transactions

engaged in by primary lending agents, other than

IITC, beyond that provided pursuant to Prohibited

Transaction Class Exemption 81–6 (PTCE 81–6) (46

FR 7527, January 23, 1981, as amended at 52 FR

18754, May 19, 1987), and Prohibited Transaction

Class Exemption 82–63 (PTCE 82–63)(47 FR 14804,

April 6, 1982).

securities lending arrangements referred

to herein as Plan A and Plan B; and

(b) the receipt of compensation by

IITC in connection with securities

lending transactions, provided that for

all transactions described above the

conditions, as set forth in Section II,

below, are satisfied.

Section II—Conditions

(a) For each Client Plan, neither the

ING Borrowers nor IITC has or exercises

discretionary authority or control with

respect to the investment of the assets

of such Client Plan involved in the

transaction (other than with respect to

the investment of cash collateral after

the securities have been loaned and

collateral received), or renders

investment advice (within the meaning

of 29 CFR 2510.3–21(c)) with respect to

those assets, including any decisions

concerning such Client Plan’s

acquisition or disposition of securities

available for securities lending

transactions;

(b) With regard to:

(1) Plan A, under which IITC lends

securities of a Client Plan to an ING

Borrower in either an agency or subagency capacity, such arrangement is

approved in advance by a fiduciary of

the Client Plan (the Client Plan

Fiduciary) that is independent of IITC

and the ING Borrower and is negotiated

by IITC, which acts as a liaison between

the lender and the borrower to facilitate

the securities lending transaction.8

(2) Plan B, under which an ING

Borrower directly negotiates an

agreement with the Client Plan

Fiduciary, including a Client Plan for

which IITC provides services with

respect to the portfolio of securities to

be loaned, pursuant to an exclusive

borrowing arrangement (an Exclusive

Borrowing Arrangement), such Client

Plan Fiduciary is independent of both

the ING Borrower and IITC, and IITC

does not participate in any such

negotiations.

(c) Before a Client Plan participates in

a securities lending program with

respect to Plan A and before any loan

of securities to an ING Borrower

pursuant to Plan A is affected, a Client

Plan Fiduciary that is independent of

IITC and the ING Borrower must have:

(1) Authorized and approved a

securities lending authorization

agreement with IITC (the Agency

Agreement), where IITC is acting as the

direct securities lending agent;

(2) Authorized and approved the

primary securities lending authorization

agreement (the Primary Lending

Agreement) with the primary lending

agent, where IITC is lending securities

under a sub-agency arrangement with a

primary lending agent; and

(3) Approved the general terms of the

securities loan agreement (the Basic

Loan Agreement) between such Client

Plan and the ING Borrower, the specific

terms of which are negotiated and

entered into by IITC.

(d) The terms of each loan of

securities by a Client Plan to an ING

Borrower are at least as favorable to

such Plan as those of a comparable

arm’s-length transaction between

unrelated parties;

(e) A Client Plan may terminate a

securities lending agency (or subagency) agreement under Plan A or an

Exclusive Borrowing Arrangement

under Plan B at any time without

penalty on five (5) business days notice,

whereupon the ING Borrower shall

deliver 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 Client

Plan within:

(1) the customary delivery period for

such securities;

(2) five (5) business days; or

(3) the time negotiated for such

delivery by the Client Plan and the ING

Borrower, whichever is less.

(f) The Client Plan (or another

custodian designated to act on behalf of

the Client Plan) receives from the ING

Borrower (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 or before the day the

loaned securities are delivered to such

ING Borrower, collateral consisting of

U.S. currency, securities issued or

guaranteed by the U.S. Government or

its agencies or instrumentalities,

irrevocable letters of credit issued by a

United States Bank, other than IITC or

the ING Borrowers, or any combination

thereof, or other collateral permitted

under PTCE 81–6 (as it may be amended

or superseded);

(g) The market value (or in the case

of a letter of credit, a stated amount) of

the collateral on the close of business on

the day preceding the day of the loan is

initially at least 102 percent (102%) of

the market value of the loaned

securities. The applicable Basic Loan

Agreement gives the Client Plan a

continuing security interest in and an

lien on the collateral. The level of

collateral is monitored daily either by

IITC under Plan A or IITC or other

designee of the Client Plan under Plan

B. If the market value of the collateral,

on the close of trading on a business

day, is less than 100 percent (100%) of

the market value of the loaned securities

at the close of business on that day, the

ING Borrower is required to deliver by

the close of business on the next day,

sufficient additional collateral such that

the market value of the collateral will

again equal 102 percent (102%).

(h) With regard to:

(1) Plan A, prior to a Client Plan

entering into a Basic Loan Agreement,

the ING Borrower will furnish its most

recent available audited and unaudited

statements to IITC, which, in turn, will

provide such statements to the Client

Plan before such Client Plan approves of

the terms of the Basic Loan Agreement.

The Basic Loan Agreement contains a

requirement that the applicable ING

Borrower must give prompt notice at the

time of a loan of any material adverse

changes in its financial condition since

the date of the most recently furnished

financial statements. If any such

changes have taken place, IITC will not

make any further loans to the ING

Borrower, unless an independent Client

Plan Fiduciary is provided notice of any

material change and approves the loan

in view of the changed financial

condition;

(2) Plan B, prior to a Client Plan

entering into an Exclusive Borrowing

Arrangement, the ING Borrower will

furnish its most recent available audited

and unaudited statements to the Client

Plan before the Client Plan elects to

enter into such agreement. The

Exclusive Borrowing Arrangement

contains a requirement that the ING

Borrower must give prompt notice at the

time of the loan of any material adverse

changes in its financial condition since

the date of the most recently furnished

financial statements;

(i) In return for lending securities, the

Client Plan either:

(1) receives a reasonable fee which is

related to the value of the borrowed

securities and the duration of the loan;

or

(2) has the opportunity to derive

compensation through the investment of

cash collateral. (Under such

circumstances, the Client Plan may pay

a loan rebate or similar fee to the ING

Borrower, if such fee is not greater than

the fee the Client Plan would pay in a

comparable arm’s length transaction

with an unrelated party.)

(j) All the procedures regarding the

securities lending activities will at a

minimum conform to the applicable

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76295

provisions of PTCE 81–6 and PTCE 82–

63 as well as the applicable banking

laws of the United Kingdom and the

Netherlands and securities laws of the

United States or the United Kingdom or

Japan;

(k) ING Institutional agrees to

indemnify and hold harmless the Client

Plans in the United States (including the

sponsor and fiduciaries of such Client

Plans) for any transactions covered by

this exemption with ING Borrowers so

that the Client Plans do not have to

litigate in the case of ING Borrowers in

foreign jurisdictions or sue ING

Borrowers to realize on the

indemnification. Such indemnification

by ING Institutional is against any and

all reasonably foreseeable damages,

losses, liabilities, costs, and expenses

(including attorney’s fees) which the

Client Plans may incur or suffer, arising

from any impermissible use by ING

Borrowers of the loaned securities or

from an event of default arising from

ING Borrowers’ failing to deliver loaned

securities in accordance with the

applicable Basic Loan Agreement or

otherwise failing to comply with the

terms of such agreement, except to the

extent that such losses or damages are

caused by the Client Plans’ own

negligence.

(1) If any event of default occurs, ING

Institutional promptly and at its own

expense (subject to rights of subrogation

in the collateral and against such

borrower), will purchase or cause to be

purchased, for the account of the Client

Plans, securities identical to the

borrowed securities (or their equivalent

as discussed above). If the collateral is

insufficient to accomplish such

purchase, ING Institutional will

indemnify the Client Plan for any

shortfall in the collateral plus interest

on such amount and any transaction

costs incurred (including attorney’s fees

of the Client Plan for legal actions

arising out of the default on loans or

failure to properly indemnify under this

provision). Alternatively, if such

replacement securities cannot be

obtained on the open market, ING

Institutional will pay the Client Plan the

difference in U.S. dollars between the

market value of the loaned securities

and the market value of the related

collateral on the date of the borrower’s

breach of its obligation to return the

loaned securities.

(2) If, however, the event of default is

caused by the ING Borrower’s failure to

return securities within a designated

time, the Client Plan has the right to

purchase securities identical to the

borrowed securities and apply the

collateral to payment of the purchase

price and any other expenses of the Plan

associated with the sale and/or

purchase.

(l) The Client Plan receives 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, and

interest payments on the loaned

securities, shares of stock as a result of

stock splits and rights to purchase

additional securities, or other

distributions.

(m) Prior to any Client Plan’s approval

of the lending of its securities to any

ING Borrower, a copy of the notice of

proposed exemption and a copy of the

final exemption, if granted, will be

provided to such Client Plan.

(n) Each Client Plan receives monthly

reports with respect to the securities

lending transactions, including but not

limited to the information described

below in representation number 19 of

the Summary of Facts and

Representations, so that an independent

Client Plan Fiduciary may monitor such

transactions with the ING Borrowers.

(o) Only Client Plans with total assets

having an aggregate market value of at

least $50 million are permitted to lend

securities to the ING Borrowers;

provided, however, that—

(1) In the case of two or more Client

Plans which are maintained by the same

employer, controlled group of

corporations or employee organization

(the Related Client Plans), whose assets

are commingled for investment

purposes in a single master trust or any

other entity the assets of which are

‘‘plan assets’’ under 29 CFR 2510.3–101

(the Plan Asset Regulation), which

entity is engaged in securities lending

arrangements with the ING Borrowers,

the foregoing $50 million requirement

shall be deemed satisfied if such trust or

other entity has aggregate assets which

are in excess of $50 million; provided

that if the fiduciary responsible for

making the investment decision on

behalf of such master trust or other

entity is not the employer or an affiliate

of the employer, such fiduciary has total

assets under its management and

control, exclusive of the $50 million

threshold amount attributable to plan

investment in the commingled entity,

which are in excess of $100 million.

(2) In the case of two or more Client

Plans which are not maintained by the

same employer, controlled group of

corporations, or employee organization

(the Unrelated Client Plans), whose

assets are commingled for investment

purposes in a group trust or any other

form of entity the assets of which are

‘‘plan assets’’ under the Plan Asset

Regulation, which entity is engaged in

securities lending arrangements with

the ING Borrowers, the foregoing $50

million requirement is satisfied if such

trust or other entity has aggregate assets

which are in excess of $50 million

(excluding the assets of any plan with

respect to which the fiduciary

responsible for making the investment

decision on behalf of such group trust

or other entity or any member of the

controlled group of corporations

including such fiduciary is the

employer maintaining such plan or an

employee organization whose members

are covered by such plan). However, the

fiduciary responsible for making the

investment decision on behalf of such

group trust or other entity—

(A) Has full investment responsibility

with respect to Client Plan assets

invested therein; and

(B) Has total assets under its

management and control, exclusive of

the $50 million threshold amount

attributable to plan investment in the

commingled entity, which are in excess

of $100 million. (In addition, none of

the entities described above must be

formed for the sole purpose of making

loans of securities.)

(p) With respect to any calendar

quarter, at least 50 percent (50%) or

more of the outstanding dollar value of

securities loans negotiated on behalf of

Client Plans will be to unrelated

borrowers, unless the Client Plan has

entered into an Exclusive Borrowing

Arrangement with the ING Borrowers.

(q) In addition to the above, all loans

involving Foreign Borrowers, as defined

in Section III (c), below, must satisfy the

following supplemental requirements:

(1) Such Foreign Borrower is a bank

which is regulated by both the Dutch

Central Bank (De Nederlandsche Bank

or DNB) and the Financial Services

Authority (FSA) of the United Kingdom

or must be a registered broker-dealer

subject to regulation by either the

Securities and Futures Authority of the

United Kingdom (the SFA) or the

Ministry of Finance (the MOF) and the

Tokyo Stock Exchange .

(2) Such Foreign Borrower must be in

compliance with all applicable

provisions of Rule 15a–6 (17 CFR

240.15a–6) under the Securities and

Exchange Act of 1934 (the 1934 Act)

which provides for foreign brokerdealers a limited exemption from

United States registration requirements;

(3) All collateral is maintained in

United States dollars or United States

dollar-denominated securities or letters

of credit;

(4) All collateral is held in the United

States and the situs of the securities

lending agreements (either the Basic

Loan Agreement under Plan A or the

Exclusive Borrowing Arrangement

76296 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

9As such, shares of the ING Groep are registered

pursuant to section 12(b) of the 1934 Act.

under Plan B) is maintained in the

United States under an arrangement that

complies with the indicia of ownership

requirements under section 404(b) of the

Act and the regulations promulgated

under 29 CFR 2550.404(b)–1; and

(5) Prior to entering a transaction

involving a Foreign Borrower, the

applicable Foreign Borrower must—

(A) Agree to submit to the jurisdiction

of the United States;

(B) Agree to appoint an agent for

service of process in the United States,

which may be an affiliate (the Process

Agent);

(C) Consent to service of process on

the Process Agent; and

(D) Agree that enforcement by a Client

Plan of the indemnity provided by ING

Institutional will occur in the United

States courts;

(r) ING maintains or causes to be

maintained within the United States for

a period of six (6) years from the date

of each securities lending transaction, in

a manner that is convenient and

accessible for audit and examination,

such records as are necessary to enable

the persons described in Section II (s)(1)

below to determine whether the

conditions of this exemption, if granted,

have been met; except that—

(1) a prohibited transaction will not

be considered to have occurred if, due

to circumstances beyond the control of

ING or the other ING Borrowers, the

records are lost or destroyed prior to the

end of the six year period; and

(2) no party in interest with respect to

an employee benefit plan, other than

ING or the other ING Borrowers, 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) or (b) of the Code, if such records are

not maintained, or are not available for

examination as required by Section

II(s)(1), below.

(s)(1) Except as provided in

subparagraph (2) of this Section II(s) and

notwithstanding any provisions of

subsections (a)(2) and (b) of section 504

of the Act, the records referred to in

Section II(r), above, are unconditionally

available at their customary location for

examination during normal business

hours by—

(A) Any duly authorized employee or

representative of the Department, the

Internal Revenue Service, or the

Securities and Exchange Commission

(SEC);

(B) Any fiduciary of a participating

Client Plan or any duly authorized

representative of such fiduciary;

(C) Any contributing employer to any

participating Client Plan, or any duly

authorized employee or representative

of such employer; and

(D) Any participant or beneficiary of

any participating Client Plan, or any

duly authorized representative of such

participant or beneficiary.

(2) None of the persons described in

subparagraphs (B)-(D) of Section II(s)(1)

shall be authorized to examine trade

secrets of ING or the other ING

Borrowers, or commercial or financial

information which is privileged or

confidential.

Section III—Definitions

For purposes of this proposed

exemption,

(a) The term ‘‘affiliate’’ of another

person shall include:

(1) Any person, directly or indirectly,

through one or more intermediaries,

controlling, controlled by, or under

common control with such other

person;

(2) Any officer, director, employee, or

relative (as defined in section 3(15) of

the Act) of such other person or any

partner in such person; and

(3) Any corporation or partnership of

which such other person is an officer,

director, employee or in which such

person is a partner.

(b) 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 Borrower or

Foreign Borrowers’’ means: (1) ING

Bank London or any successor in

interest bank subject to the laws of the

United Kingdom and the Netherlands;

(2) ING London; (3) ING Japan; and (4)

any broker-dealer that, now or in the

future, is an affiliate of ING which is

subject to regulation under the laws of

the United States or the United

Kingdom or Japan.

Summary of Facts and Representations

1. The ING Groep N.V. (the ING

Groep) is a publicly held Dutch

corporation with slightly under one

billion shares outstanding as of

December 31, 1998. American

Depository Receipts of the ING Groep

are traded on the New York Stock

Exchange.9 In addition, the shares of the

ING Groep are traded on the Amsterdam

Stock Exchange.

2. ING Barings LLC (ING), a Delaware

limited liability corporation, is an

indirect wholly-owned subsidiary of the

ING Groep. ING is a full service

investment firm serving institutional,

corporate, and high net worth

individual clients. ING is registered

with the SEC and is a member of all

principal securities exchanges in the

United States, including, but not limited

to, the New York Stock Exchange, the

American Stock Exchange, as well as

the National Association of Securities

Dealers, Inc. As of March 31, 2000, ING

had $17.746 billion in assets.

ING, acting as principal, borrows

securities from institutions and either

utilizes such securities to satisfy its own

needs, or re-lends these securities to

brokerage firms and other entities. The

average amount of securities on loan to

ING during the month of March 2000,

was approximately $11.356 billion, and

the average amount of securities being

lent by ING during March 2000, was

approximately $7.986 billion. It is

represented that in making securities

loans, ING carefully reviews the creditworthiness of its counter-parties and

conforms to the requirements of

Regulation T, as promulgated by the

U.S. Federal Reserve Board.

3. ING Institutional, an indirect

wholly-owned subsidiary of the ING

Groep and an affiliate of ING, is

organized as a limited purpose trust

company licensed by the New York

State Banking Department. ING

Institutional has its principal executive

offices in New York, New York. ING

Institutional acts as a securities lending

agent and provides securities lending

services for Client Plans and other

entities. ING Institutional may also be

retained from time to time by primary

securities lending agents to provide

securities lending services in a subagent capacity with respect to portfolio

securities of clients of such primary

securities lending agents. As a securities

lending sub-agent, ING Institutional’s

role (i.e., negotiating the terms of the

loans with borrowers pursuant to a

client-approved form of a loan

agreement, and monitoring receipt of,

and marking-to-market, the required

collateral) parallels those under the

securities lending transactions for

which ING Institutional acts as a

primary lending agent on behalf of its

own clients.

4. ING Bank N.V., a direct subsidiary

of the ING Groep, is a Dutch

incorporated public limited liability

company regulated by the DNB. As of

December 31, 1999, ING Bank N.V. had

total assets of approximately EUR

349,618 million and shareholder’s

equity of approximately EUR 13,212

million. ING Bank London, a branch of

ING Bank N.V., is authorized to conduct

a banking business in the United

Kingdom.

5. ING London, an indirect subsidiary

of the ING Groep, is an English

company registered with the Registrar of

Companies for England and Wales. ING

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76297

10Future references to IITC’s performance of

services as securities lending agent should be

deemed to include its parallel performance as a

securities lending sub-agent, and references to the

Client Plans should be deemed to include those

plans for which IITC is acting as a sub-agent with

respect to securities lending activities, unless

otherwise specifically indicated or by the context of

reference.

11PTCE 81–6 provides an exemption under

certain conditions from section 406(a)(1)(A) through

(D) of the Act and the corresponding provisions of

section 4975(c) of the Code for the lending of

securities that are assets of an employee benefit

plan to certain broker-dealers or banks which are

parties in interest.

PTCE 82–63 provides an exemption under

specified conditions from section 406(b)(1) of the

Act and section 4975(c)(1)(E) of the Code for the

payment of compensation to a plan fiduciary for

services rendered in connection with loans of plan

assets that are securities. PTCE 82–63 permits the

payment of compensation to a plan fiduciary for the

provision of securities lending services only if the

loan of securities itself is not prohibited under

section 406(a) of the Act.

London is also an international

investment banking organization. As of

December 31, 1999, ING London had

total assets of approximately

2,595,477,000 pounds. ING London is

authorized to conduct an investment

business in and from the United

Kingdom as a broker-dealer.

6. ING Japan is an indirect subsidiary

of the ING Groep. As of December 31,

1999, ING Japan had total assets of

approximately 39 billion yen. ING Japan

is a Japanese company authorized to

conduct an investment business in

Japan as a broker-dealer.

7. Brokers and other entities,

including banks, often need to borrow a

particular security for certain periods of

time in order to satisfy deliveries in

cases of short sales, or in cases where a

broker, bank, or other entity fails to

receive securities which it in turn is

required to deliver. An institutional

investor, such as a pension fund, lends

securities in its portfolio to a brokerdealer, a bank, or other entity to earn a

fee in addition to any interest,

dividends, or other distributions paid

on the loaned securities. The lender

generally requires that the security loans

be fully collateralized. In this regard, the

collateral usually is cash or high quality

liquid securities issued by the U.S.

Government, Federal Agency

obligations, or certain bank letters of

credit. When the collateral is cash, the

lender generally invests the cash and

rebates a portion of the earnings on such

cash collateral to the borrower. The fee

received by the lender is the difference

between the earnings on the cash

collateral and the amount of the rebate

that is paid to the borrower. When a

securities loan is collateralized with

U.S. Government or Federal Agency

securities or with letters of credit issued

by a bank, the fee is paid directly by the

borrower to the lender.

Institutional investors often utilize the

services of an agent in performing

securities lending transactions. The

lending agent is also paid a fee for its

services that may be a percentage of the

income earned by the investor from

lending its securities. The essential

functions which define a securities

lending agent are identifying

appropriate borrowers of securities and

negotiating loan terms with the

borrowers. Certain services that are

ancillary to securities lending include

monitoring the level of collateral, the

value of loaned securities, and in some

instances, investing the collateral.

8. The applicants request an

individual administrative exemption for

the lending of securities owned by

Client Plans, with respect to which IITC

acts as a directed trustee or custodian

and/or securities lending agent (or subagent),10 to the ING Borrowers following

disclosure to the Client Plans of IITC’s

affiliation with such ING Borrowers,

under either of two arrangements—

described as Plan A and Plan B. The

applicants also request an individual

administrative exemption for the receipt

of compensation by IITC in connection

with such securities lending

transactions. Neither IITC nor the ING

Borrowers will have discretionary

authority or control over the Client

Plans’ decisions concerning the

acquisition or disposition of securities

available for lending. However, because

IITC under the Plan A arrangement and

the ING Borrowers under the Plan B

arrangement (as discussed further

below), will have discretion with

respect to whether there is a loan of the

Client Plans’ securities to the ING

Borrowers, the lending of securities to

the ING Borrowers under such

arrangements may be outside the scope

of relief provided by PTCE 81–6 and

PTCE 82–63.11

Plan A

9. As noted above, the agreement by

IITC to provide securities lending

services, as agent, to a Client Plan will

be embodied in the Agency Agreement.

In the case of the Plan A arrangement,

where IITC acts as the securities lending

agent, the Client Plan Fiduciary who is

independent of IITC and the ING

Borrower will sign the Agency

Agreement with IITC before the Client

Plan participates in IITC’s securities

lending program. Further, the Client

Plan and IITC will agree to an

arrangement under which IITC will be

compensated for its services as the

lending agent prior to the

commencement of any lending activity.

The Client Plan may terminate the

Agency Agreement at any time, without

penalty, on no more than five (5)

business days’ notice.

The Agency Agreement will, among

other things, describe the operation of

the securities lending program,

prescribe the form of the securities loan

agreement to be entered into on behalf

of the Client Plan with the borrowers,

and identify the securities which are

available to be lent, the required

collateral, and daily marking-to-market.

The Agency Agreement will set forth the

basis and rate for IITC’s compensation

from the Client Plan for the performance

of securities lending services. Further,

the Agency Agreement will contain

provisions regarding designation by the

Client Plan of a list of permissible

borrowers, including the ING

Borrowers. Specifically, the Client Plan

will acknowledge that the ING

Borrowers are affiliates of IITC.

Pursuant to the Agency Agreement, IITC

will represent to each Client Plan that

each loan made to ING Borrowers on

behalf of such Client Plan will be at

market rates, and in no event will such

rates be less favorable to the Client Plan

than a loan of such securities made at

the same time and under the same

circumstances to an unaffiliated

borrower.

10. When IITC is lending securities

under a sub-agency arrangement, before

the Client Plan participates in the

securities lending program, the primary

lending agent will enter into the

Primary Lending Agreement with a

Client Plan Fiduciary, who is

independent of such primary lending

agent, IITC, and the ING Borrowers. The

Client Plan may terminate the Primary

Lending Agreement at any time, without

penalty, on no more than five (5)

business days’ notice.

The Primary Lending Agreement will

contain substantive provisions akin to

those in the Agency Agreement

described above, relating to the

description of the operation of the

securities lending program, the use of an

approved form of securities loan

agreement, the identification of

securities which are available to be lent,

the required collateral, daily marking-tomarket, and the provision of a list of

approved borrowers, including the ING

Borrowers. The Primary Lending

Agreement will specifically authorize

the primary lending agent to appoint

sub-agents, including IITC, to facilitate

its performance of securities lending

agency functions.

Where IITC is to act as a sub-agent,

the Primary Lending Agreement will

expressly disclose such fact. The

Primary Lending Agreement will also

set forth the basis and rate for the

76298 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

12An overnight ‘‘REPO’’ is an overnight

repurchase agreement that is an arrangement

whereby securities dealers and banks finance their

inventories of Treasury bills, notes, and bonds. The

dealer or bank sells securities to an investor with

a temporary surplus of cash, agreeing to buy them

back the next day. Such transactions are settled in

immediately available Federal Funds, usually at a

rate below the Federal Funds rate (the rate charged

by the banks lending funds to each other).

primary lending agent’s compensation

from the Client Plan for the performance

of securities lending services. Further,

such agreement will authorize the

primary lending agent to pay a portion

of its fee, as the primary lending agent

determines in its sole discretion, to any

sub-agent(s), including IITC, that the

primary lending agent retains pursuant

to the authority granted under such

agreement.

Pursuant to its authority to appoint

sub-agents, the primary lending agent

will enter into a securities lending subagency agreement (the Sub-Agency

Agreement) with IITC under which the

primary lending agent will retain and

authorize IITC, as sub-agent, to lend

securities of the primary lending agent’s

clients, subject to the same terms and

conditions as are specified in the

Primary Lending Agreement. Thus, for

example, the form of securities loan

agreement will be the same as that

approved by the Client Plan Fiduciary

in the Primary Lending Agreement, and

the list of permissible borrowers under

the Sub-Agency Agreement (which will

include the ING Borrowers) will be

limited to those approved borrowers

listed as such under the Primary

Lending Agreement.

The Sub-Agency Agreement will

contain provisions that are in substance

comparable to those which would

appear in the Agency Agreement in

situations where IITC is the primary

lending agent. In this regard, IITC will

make the same representation in the

Sub-Agency Agreement with respect to

arm’s-length dealings with the ING

Borrowers. The Sub-Agency Agreement

will also set forth the basis and rate for

IITC’s compensation to be paid by the

primary lending agent.

11. IITC, acting as securities lending

agent for the Client Plans, will negotiate

the Basic Loan Agreement and any

modifications thereto with the ING

Borrowers on behalf of the Client Plans.

The Basic Loan Agreement will set forth

the basis for compensation to the Client

Plan for lending securities to the ING

Borrowers under each category of

collateral. The Basic Loan Agreement

will also contain a requirement that the

ING Borrowers must pay all transfer fees

and transfer taxes related to the security

loans. An independent Client Plan

Fiduciary will approve the form of the

Basic Loan Agreement before such

fiduciary executes the Agency

Agreement. Further, the Basic Loan

Agreement will specify, among other

things, the right of the Client Plan to

terminate a loan at any time and the

Client Plan’s rights in the event of any

default by the ING Borrowers.

12. Prior to making any loans under

the Basic Loan Agreement, the ING

Borrower will furnish to IITC (assuming

IITC does not already possess such

statements), its most recent available

audited financial statements (and

unaudited financial statements if more

recent than such audited statements).

IITC will, in turn, provide such

statements to the Client Plan before the

independent Client Plan Fiduciary is

asked to approve the terms of the Basic

Loan Agreement. The terms of the Basic

Loan Agreement will contain a

requirement that the ING Borrower must

give prompt notice at the time of the

loan of any material adverse changes in

its financial condition since the date of

the most recently furnished financial

statements. If any such changes have

taken place, IITC will request that the

independent Client Plan Fiduciary

approve the loan in view of the changed

financial condition.

13. Each time a Client Plan loans

securities to an ING Borrower pursuant

to the Basic Loan Agreement, such ING

Borrower will execute a designation

letter specifying the material terms of

the loan, including the securities to be

loaned, the required level of collateral,

and the fee or rebate payable, and any

special delivery instructions. The terms

of each loan will be at least as favorable

to the Client Plan as those of a

comparable arm’s-length transaction

between unrelated parties.

14. To assure uniformity of treatment

among borrowing brokers and to limit

the discretion IITC would have in

negotiating securities loans to the ING

Borrowers, IITC will establish each day

a written schedule of lending fees and

rebate rates. In this regard, IITC will

adopt minimum daily lending fees

payable by each borrower, including

ING Borrowers, to IITC on behalf of the

Client Plans with respect to securities

loans secured with collateral other than

cash and will adopt maximum daily

rebate rates payable to each borrower,

including the ING Borrowers, with

respect to securities loans secured with

cash collateral. Loans to all borrowers,

including ING Borrowers, of a given

security on any day will be made at

rebate rates or lending fees on the

relevant daily schedule or at rebate rates

or lending fees that may be more

advantageous to the Client Plans. In no

case will the loans be made to ING

Borrowers at rebate rates or lending fees

less advantageous to the Client Plan

than those on the schedule.

IITC will negotiate on behalf of a

Client Plan rebate rates for loans

secured by cash collateral payable to

each borrower, including ING

Borrowers. When a loan of securities by

a Client Plan is collateralized with cash,

IITC, at the Client Plan’s direction, will

either transfer such cash collateral to the

Client Plan or its designated agent for

investment. Alternatively, IITC may

invest the cash in short-term securities

or interest-bearing accounts. In either

case, IITC will on behalf of the Client

Plan rebate a portion of the earnings on

the cash collateral to the ING Borrowers.

The rebate rates, which are established

for loans secured by cash collateral

made by the Client Plans, will take into

account the potential demand for the

loaned securities, the applicable

benchmark cost of funds indices

(typically, the U.S. Federal Funds Rate

established by the Federal Reserve

System (Federal Funds), the overnight

‘‘REPO’’ 12 rate, or the like), and the

anticipated investment return on

overnight investments which are

permitted by the Client Plan Fiduciary.

For example, where cash collateral

derived from an overnight loan is

intended to be invested in a generic

repurchase agreement, any rebate fee

determined with respect to an overnight

repurchase agreement benchmark will

be set below the applicable ‘‘ask’’

quotation therefor. For example, where

cash collateral is derived from a loan

with an expected maturity date (term

loan) and is intended to be invested in

instruments with similar maturities, the

maximum rebate fee will be less than

the investment return (assuming no

investment default). With respect to any

loan to ING Borrowers, IITC will not

knowingly negotiate a rebate rate with

respect to such loan which over the

anticipated term of the loan would

produce a zero or negative return to the

Client Plan (assuming no default on the

investments related to the cash

collateral from such loan where IITC has

investment discretion over the cash

collateral). IITC represents that the

written rebate rate established daily for

cash collateral under loans negotiated

with the ING Borrowers will not exceed

the rebate rate which would be paid to

a similarly situated unrelated borrower

with respect to a comparable securities

lending transaction.

Where the collateral consists of

obligations other than cash, the ING

Borrowers will pay a fee to the Client

Plan based on the value of the loaned

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76299

securities. The lending fees, which are

established with respect to loans made

by the Client Plans collateralized by

other than cash, will be set daily to

reflect conditions as influenced by

potential market demand. For loans

secured by collateral other than cash,

the applicable lending fee in respect of

any outstanding loan will be reviewed

daily by IITC for competitiveness and

adjusted, where necessary, to reflect

market terms and conditions. With

respect to any calendar quarter, at least

50 percent (50%) of the securities loans

negotiated on behalf of the Client Plans

will be to borrowers not affiliated with

IITC, and so the competitiveness of the

loan fee will be tested in the

marketplace. Accordingly, the

applicants state that loans to the ING

Borrowers should result in a

competitive rate of income to the

lending Client Plan. At all times, IITC

will effect loans in a prudent and

diversified manner.

Prior to lending any securities to the

ING Borrowers on behalf of the Client

Plan, IITC will disclose the method for

determining minimum daily lending

fees and maximum daily rebate rates, as

described above, to an independent

Client Plan Fiduciary for approval. The

method of determining the actual daily

securities lending rates (fees and

rebates), the minimum lending fees

payable by the ING Borrowers and the

maximum rebate payable to the ING

Borrowers, will be specified in an

exhibit attached to the Agency

Agreement to be executed between the

independent Client Plan Fiduciary and

IITC in cases where IITC is the direct

securities lending agent.

15. If IITC reduces the lending fee or

increases the rebate rate on any

outstanding loan to an ING Borrower

(except for any change resulting from a

change in the value of any index with

respect to which the fee or rebate is

calculated), IITC, by the close of

business on the date of such adjustment,

shall provide the independent Client

Plan Fiduciary with notice that IITC has

adjusted such fee or rebate to such

affiliated borrower, and that the Client

Plan may terminate such loan at any

time. IITC shall provide the

independent Client Plan Fiduciary with

such information as may reasonably be

requested regarding such adjustment.

16. While IITC will normally lend

securities to requesting borrowers on a

‘‘first come, first served’’ basis, as a

means of assuring uniformity of

treatment among borrowing brokers, in

some cases it may not be possible to

adhere to a ‘‘first come, first served’’

allocation. This can occur in instances

when: (a) the credit limit established for

such ‘‘first in line’’ borrower by IITC

and/or the Client Plan has already been

satisfied; (b) the ‘‘first in line’’ borrower

is not approved as a borrower by a

particular Client Plan whose securities

are sought to be borrowed; or (c) the

‘‘first in line’’ borrower cannot be

ascertained, as an operational matter,

because several borrowers spoke to

different representatives of IITC at or

about the same time with respect to the

same security. In situations (a) and (b),

above, loans would usually be effected

with the ‘‘second in line’’ borrower. In

situation (c), above, securities would be

allocated as equitably as practicable

among all eligible requesting borrowers.

17. IITC on behalf of a Client Plan will

receive collateral from ING Borrowers

by physical delivery, book entry in a

U.S. securities depository, wire transfer,

or similar means by the close of

business on or before the day the loaned

securities are delivered to such ING

Borrowers. The collateral will consist of

U.S. dollars, securities issued or

guaranteed by the United States

Government or its agencies or

instrumentalities, irrevocable United

States bank letters of credit issued by an

entity other than the ING Borrowers or

any affiliate thereof, or any combination

thereof, or other collateral permitted

under PTCE 81–6 (as amended from

time to time or, alternatively, any

additional or superceding class

exemption that may be issued to cover

securities lending by employee benefit

plans).

The market value of the collateral on

the close of business on the business

day preceding the day the loaned

securities are delivered to the ING

Borrowers will be at least 102 percent

(102%) of the then market value of the

loaned securities. The Basic Loan

Agreement will give the Client Plan a

continuing security interest in and a

lien on the collateral. IITC will monitor

the level of the collateral daily. If the

market value of the collateral falls below

100 percent (100%), IITC will require

the ING Borrower to deliver by the close

of business the next day sufficient

additional collateral to bring the level

back to at least 102 percent (102%).

18. Subject to the terms and

conditions of the Agency Agreement (or

the Primary Lending Agreement), IITC

will invest and reinvest all or

substantially all cash collateral in

approved investments designated by the

applicable Client Plan and identified on

a schedule attached to the relevant

agreement. All approved investments

made by IITC will be for the sole

account and risk of the applicable Client

Plan. From time to time, the Client Plan

may instruct IITC in writing not to make

an approved investment with a certain

counter-party, or through a particular

financial institution or intermediary.

Alternatively, the Client Plan may also

retain the right to directly control the

reinvestment of the cash collateral.

19. Each Client Plan participating in

the lending program will be sent a

monthly transaction report. The

monthly report will list for a specified

period all outstanding or closed

securities lending transactions. The

report will identify for each open loan

position, the securities involved, the

value of the security for collateralization

purposes, the current value of the

collateral, the rebate or loan premium

(as the case may be) at which the

security is loaned, and the number of

days the security has been on loan. At

the request of the Client Plan, such a

report will be provided on a weekly or

daily basis, rather than a monthly basis.

Also, upon request of the Client Plan,

IITC will provide the Client Plan with

daily confirmations of securities lending

transactions.

In order to provide the means for

monitoring lending activity, rates on

loans to the ING Borrowers compared

with loans to other brokers, and the

level of collateral on such loans, it is

represented that the monthly report will

show, on a daily basis, the market value

of all outstanding loans of securities to

the ING Borrowers and to other

borrowers. Further, the monthly report

will state the daily fees where collateral

other than cash is utilized and will

specify the details used to establish the

daily rebate payable to all brokers where

cash is used as collateral. The monthly

report also will state, on a daily basis,

the rates at which securities are loaned

to the ING Borrowers compared with the

rates at which securities are loaned to

other brokers. This statement will give

each independent Client Plan Fiduciary

information that can be compared to

that contained in the daily rate

schedule.

20. Under the Plan A arrangement

and, in some instances, under the Plan

B arrangement (see paragraph 21, below,

for the types of lending services which

may be provided to the Client Plans by

IITC under Plan B arrangement), the

Client Plan will pay a fee to IITC for

providing lending services to the Client

Plan, which will reduce the income

earned by the Client Plan from lending

its securities to the ING Borrowers. The

Client Plan and IITC will agree in

advance to this fee, which will represent

a percentage of the income the Client

Plan earns from its lending activities.

76300 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

Plan B

21. With respect to Plan B, the ING

Borrowers will directly negotiate an

Exclusive Borrowing Arrangement with

a fiduciary of a plan, including Client

Plans for which IITC serves as directed

trustee or custodian, where such

fiduciary is independent of the ING

Borrower and IITC. Under the Exclusive

Borrowing Arrangement, the ING

Borrower will have exclusive access for

a specified period of time to borrow

securities of the Client Plan pursuant to

certain conditions. IITC will not

participate in the negotiation of the

Exclusive Borrowing Arrangement. The

involvement of IITC, if any, will be

limited to such activities as holding

securities available for lending,

handling the movement of borrowed

securities and collateral, and investing

or depositing any cash collateral and

supplying the Client Plans with certain

reports. The applicants represent that,

under an Exclusive Borrowing

Arrangement, neither the ING Borrower

nor IITC will perform for the relevant

Client Plan the functions which

constitute the essential functions of a

securities lending agent.

22. Upon delivery of loaned securities

to the ING Borrower, IITC, or another

custodian on behalf of the Client Plan,

will receive from the ING Borrower on

the same day by physical delivery, book

entry in a U.S. securities depository,

wire transfer, or similar means collateral

consisting of U.S. dollars, securities

issued or guaranteed by the United

States Government or its agencies or

instrumentalities, irrevocable United

States bank letters of credit issued by an

entity other than the ING Borrowers, or

any combination thereof, or other

collateral permitted under PTCE 81–6

(as amended from time to time or,

alternatively, any additional or

superceding class exemption that may

be issued to cover securities lending by

employee benefit plans).

The market value of the collateral at

the close of business on the business

day preceding the day the loaned

securities are delivered to the ING

Borrower will be at least 102 percent

(102%) of the then market value of the

loaned securities. IITC or such other

custodian will monitor the level of the

collateral daily. If the market value of

the collateral falls below 100 percent

(100%) of that of the loaned securities,

the ING Borrower will deliver sufficient

additional collateral on the following

day such that the market value of all

collateral will equal at least 102 percent

(102%) of the market value of the

loaned securities. The ING Borrower or,

in the case of some Client Plans, IITC,

will provide a weekly report to the

Client Plan showing, on a daily basis,

the aggregate market value of all

outstanding security loans to the ING

Borrower, and the aggregate market

value of the collateral.

23. Before entering into an Exclusive

Borrowing Arrangement, the ING

Borrower will furnish to the Client Plan,

if such plan does not already possess

such statements, the most recent

publicly available audited and

unaudited statements of its financial

condition, as well as any other publicly

available information which the ING

Borrower believes is necessary for the

Client Plan to determine whether to

enter into or renew the arrangement,

and a copy of the final exemption, if

granted, together with this proposed

exemption. The Exclusive Borrowing

Arrangement will contain a requirement

that the ING Borrower must give prompt

notice at the time of a loan of any

material adverse changes in financial

condition of the ING Borrower since the

date of the most recently furnished

financial statements. All the procedures

under the Exclusive Borrowing

Agreement will conform to the

applicable provisions of PTCE 81–6 and

PTCE 82–63 and will be in compliance

with the applicable banking laws of the

United Kingdom and the Netherlands,

and the securities laws of the United

States, the United Kingdom or Japan.

24. In exchange for the exclusive right

to borrow certain securities from a

Client Plan, an ING Borrower will pay

such Client Plan either a flat fee, or a

minimum flat fee plus a percentage

(negotiated at the time the Exclusive

Borrowing Arrangement is entered into)

of the total balance outstanding of

borrowed securities, or a percentage of

the total balance outstanding without

any flat fee. A percentage may be

established by reference to an objective

formula. The ING Borrower and the

independent Client Plan Fiduciary may

agree that different fee arrangements

will apply to different securities or

different groups of securities. Any

change in the rate paid to the Client

Plan will require the written consent of

the independent Client Plan Fiduciary.

However, such Client Plan’s consent

will be presumed where the rate

changes pursuant to an objective

formula. In such instances, an

independent Client Plan Fiduciary must

be notified at least 24 hours in advance

of the rate change, and the independent

Client Plan Fiduciary must not object in

writing to such change, prior to the

effective date of the change. Under this

fee arrangement, all earnings generated

by the cash collateral will be returned

to the ING Borrower. The Client Plan

will receive credit for all interest,

dividends, or other distributions on any

borrowed securities. In addition, under

some arrangements, the earnings on the

collateral due to the ING Borrower, and

the dividends, interest, and other

distributions on the borrowed securities

payable to the Client Plan may be offset

against each other, so that only a net

amount will be returned to the ING

Borrower.

25. Either party may terminate the

Exclusive Borrowing Arrangement and/

or any outstanding securities loan at any

time. Upon termination of any securities

loan, the ING Borrower will deliver any

borrowed securities back to the Client

Plan within five (5) business days of

written notice of termination.

26. With regard to those Client Plans

for which IITC provides custodial,

clearing, and/or reporting functions

relative to securities lending

transactions, IITC and an independent

Client Plan Fiduciary and the ING

Borrowers will agree in advance and in

writing to any fee that IITC is to receive

for such services. Such fees, if any,

would be fixed fees (e.g., IITC might

negotiate to receive a fixed percentage of

the value of the assets with respect to

which it performs these services, or to

receive a stated dollar amount) and any

such fee would be in addition to any fee

IITC has negotiated to receive from any

such Client Plan for standard custodial

or other services unrelated to the

securities lending activity. The

arrangement for IITC to provide such

functions relative to loans of securities

to the ING Borrower will be terminable

by the Client Plan within five (5)

business days of receipt of written

notice without penalty to the Client

Plan, except for the return to the ING

Borrower of a part of any flat fee paid

by such ING Borrower to the Client

Plan, if the Client Plan has also

terminated its Exclusive Borrowing

Arrangement with the ING Borrower.

Before entering into an agreement with

the Client Plan to provide such

functions relative to loans of securities

to the ING Borrower, IITC will furnish

to the Client Plan any publicly available

information which it believes is

necessary for the Client Plan to

determine whether to enter into or

renew the Exclusive Borrowing

Arrangement.

27. The conditions of this exemption,

if granted, will provide adequate

safeguards for the Client Plans which

engage in securities lending

transactions. Under the terms of this

proposed exemption, only Client Plans

with total assets having an aggregate

market value of at least $50 million are

permitted to lend securities to the ING

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76301

Borrowers, as measured in accordance

with Section I(o) of this proposed

exemption. This restriction is intended

to assure that any lending to the ING

Borrowers will be monitored by an

independent Client Plan Fiduciary of

above average experience and

sophistication in matters of this kind

who is acting on behalf of a Client Plan.

Further, safeguards are provided in

that for any transactions with ING

Borrowers covered by this proposed

exemption, ING Institutional, a U.S.

affiliate of ING, has agreed to indemnify

and hold harmless the Client Plans in

the United States (including the sponsor

and fiduciaries of such Client Plans) so

that the Client Plans will not have to

litigate in the case of ING Borrowers in

foreign jurisdictions or sue ING

Borrowers to realize on the

indemnification. Such indemnification

by ING Institutional protects the Client

Plans against any and all reasonably

foreseeable damages, losses, liabilities,

costs, and expenses (including

attorney’s fees) which such plans may

incur or suffer, arising from any

impermissible use by ING Borrowers of

the loaned securities or from an event of

default arising from an ING Borrower’s

failure to deliver loaned securities in

accordance with the applicable Basic

Loan Agreement or otherwise failing to

comply with the terms of such

agreement. If any event of default

occurs, ING Institutional promptly and

at its own expense (subject to rights of

subrogation in the collateral and against

such borrower), will purchase or cause

to be purchased, for the account of the

Client Plans, securities identical to the

borrowed securities (or their

equivalent). Alternatively, if such

replacement securities cannot be

obtained on the open market, ING

Institutional will pay the Client Plan the

difference in U.S. dollars between the

market value of the loaned securities

and the market value of the related

collateral, on the date of the borrower’s

breach of its obligation to return the

loaned securities. If, however, the event

of default is caused by the ING

Borrower’s failure to return securities

within a designated time, the Client

Plan has the right to purchase securities

identical to the borrowed securities and

apply the collateral to payment of the

purchase price and any other expenses

of the Plan associated with the sale and/

or purchase. If the collateral is

insufficient to accomplish such

purchase, ING Institutional will

indemnify the Client Plan for any

shortfall in the collateral plus interest

on such amount and any transaction

costs incurred (including attorney’s fees

of the Client Plan for legal actions

arising out of the default on loans or

failure to properly indemnify under this

provision).

28. The proposed exemption will be

protective of the rights of participants

and beneficiaries of the Client Plans

because of the on-going oversight of

certain regulatory agencies. In this

regard, ING Bank London is subject to

primary supervision of DNB (i.e., De

Nederlandsche Bank), the Dutch central

bank. DNB is also a member of the

European System of Central Banks.

Pursuant to the Dutch banking law and

directives issued by the European Union

(EU), DNB is responsible for

safeguarding the solvency and liquidity

of Dutch banks and protecting the rights

of creditors thereof, including branches

of ING Bank located in EU Member

States. ING represents that the DNB

ensures that there are procedures for

monitoring and controlling its

worldwide activities through various

statutory and regulatory standards.

Among these standards are

requirements for adequate internal

controls, oversight, administration, and

financial resources. ING further

represents that it is required to provide

the DNB on a recurring basis with

information regarding capital adequacy,

as well as periodic, consolidated

financial reports on the financial

condition of ING Bank N.V. and its

affiliates.

DNB has adopted rules to insure that

Dutch banks, such as ING Bank, remain

solvent through limitations imposed on

the risk-bearing operations of such

institutions. DNB has also issued

liquidity directives mandating that

Dutch banks maintain a certain level of

liquid assets to insure that all liabilities

can be met when due. Finally, DNB

supervises the administrative

organizations of Dutch banks, including

their internal accounting systems and

internal control systems. This authority

includes taking measures designed to

prevent conflicts of interest within

Dutch banks and advising (and, when

necessary, directing) Dutch banks with

regard to their internal administrative

organization to insure adequate risk

management. It is represented that such

supervisory authority also applies to the

ING Bank London.

To ensure compliance with all

applicable rules and to enable DNB to

monitor the operations, Dutch banks are

required to submit monthly and audited

annual returns which reflect the banks

true and fair financial position. DNB can

withdraw a bank’s license for failure to

follow instructions to correct an

incorrect return. Failure to file an

annual report, within six (6) months of

the end of the fiscal year, can result in

the imposition of a fine or two years

imprisonment.

With regard to enforcement, where a

Dutch bank fails to comply with DNB’s

solvency, liquidity, or administrative

organization requirements, DNB will

inform the bank that a violation has

occurred and that such violation must

be corrected. In this regard, it is

represented that DNB may instruct the

bank on how to correct the violation.

Failure to comply with DNB

instructions within a two week period,

or failure to submit a suitable

explanation of the violation, may result

in: (a) all management decisions being

subject to DNB approval; (b) the

appointment of DNB officers to assume

control; or (c) when warranted, a cease

and desist order or significant fines. If

officers of a foreign branch of a Dutch

bank, such as ING Bank London, fail to

follow DNB instructions, and if such

failure rises to a criminal violation, a

fine or two years imprisonment may be

imposed.

Further protection is offered the

Client Plans in that ING Bank London

is also subject to regulation by the FSA

(i.e., the Securities and Futures

Authority of the U.K.) for the Bank of

England. FSA assumed the regulatory

role of the Bank of England in 1998.

FSA’s powers include licensing banks

in the United Kingdom, issuing

directives to address violations or

irregularities involving such banks,

requiring information from a bank or its

auditor regarding supervisory matters

and revoking bank licenses.

29. As a broker-dealer authorized to

conduct business in the United

Kingdom, ING London is authorized

and governed by the rules, regulations,

and registration requirements of the

SFA. In this regard, ING London is

subject to rules relating to minimum

capitalization, reporting requirements,

periodic examinations, client money

and safe custody rules and requirements

for books and records with respect to

client accounts. Although ING London

is not registered with the SEC in the

United States, the rules and regulations

set forth by the SFA share a common

objective with the SEC in that both

protect the investor by regulating the

securities industry under their

jurisdiction. The SFA requires each firm

that employs registered representatives

or registered traders to have a positive

tangible net worth and be able to meet

its obligations when due. In addition,

the SFA rules set forth comprehensive

financial resource and reporting/

disclosure rules regarding capital

adequacy. Further, to demonstrate

capital adequacy, the SFA rules impose

76302 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

13Section 3(a)(4) of the 1934 Act defines ‘‘broker’’

to mean ‘‘any person engaged in the business of

effecting transactions in securities for the account

of others, but it does not include a bank.’’ Section

3(a)(5) of the 1934 Act provides a similar exclusion

for ‘‘banks’’ in the definition of the term ‘‘dealer.’’

However, section 3(a)(6) of the 1934 Act defines

‘‘bank’’ to mean a banking institution organized

under the laws of the United States or a State of

the United States. Further, Rule 15(a)(6)(b)(2)

provides that the term ‘‘foreign broker or dealer’’

means ‘‘any non-U.S. resident person . . . whose

securities activities, if conducted in the United

States, would be described by the definition of

‘‘broker’’ or ‘‘dealer’’ in sections 3(a)(4) or 3(a)(5) of

the 1934 Act. Therefore, the test of whether an

entity is a ‘‘foreign broker’’ or ‘‘dealer’’ is based on

the nature of such foreign entity’s activities and,

with certain exceptions, only banks that are

regulated by either the United States or a State of

the United States are excluded from the definition

of the term ‘‘broker’’ or ‘‘dealer.’’ Thus, for purposes

of this exemption request, the applicants will

comply with the applicable provisions and relevant

SEC interpretations and amendments of Rule 15a–

6 with respect to all Foreign Borrowers.

14The term ‘‘U.S. institutional investor,’’ as

defined in Rule 15a–6(b)(7), includes an employee

benefit plan within the meaning of the Act, if (a)

the investment decision is made by a plan

fiduciary, as defined in section 3(21) of the Act,

which is either a bank, savings and loan

association, insurance company, or registered

investment adviser, or (b) the employee benefit plan

has total assets in excess of $5 million, or (c) the

employee benefit plan is a self-directed plan with

investment decisions made solely by persons that

are ‘‘accredited investors,’’ as defined in Rule

501(a)(1) of Regulation D of the Securities Exchange

Act of 1933, as amended.

15The term ‘‘U.S. major institutional investor’’ is

defined in Rule 15a–6(b)(4) as a person that is a U.S.

institutional investor that has total assets in excess

of $100 million or an investment adviser registered

under Section 203 of the Investment Advisers Act

of 1940 that has total assets under management in

excess of $100 million.

The Department notes that a SEC No-Action

Letter has expanded the categories of entities that

qualify as ‘‘‘major U.S. institutional investors’’. See

SEC No-Action letter issued to Cleary, Gottlieb,

Steen & Hamilton on April 9, 1997.

16 ING London and ING Japan, in lieu of relying

on a U.S. broker-dealer and to the extent permitted

by applicable U.S. securities law, may rely on a U.S.

bank or trust company, including ING Institutional,

to perform this role.

reporting/disclosure requirements on

broker-dealers with respect to risk

management, internal controls, and

transaction reporting and record

keeping requirements to the effect that

required records must be produced at

the request of the SFA, at any time.

Finally, the rules and regulations of the

SFA for broker-dealers impose potential

fines and penalties that establish a

comprehensive disciplinary system.

30. As a Japanese company authorized

as a broker-dealer, ING Japan is

governed by the rules, regulations and

membership requirements of the MOF

(i.e., the Ministry of Finance) and the

Tokyo Stock Exchange. In this regard,

ING Japan is subject to rules relating to

minimum capitalization, reporting

requirements, periodic examinations,

client money and safe custody rules,

and requirements for books and records

with respect to client accounts. The

MOF and the Tokyo Stock Exchange

share a common objective with the SEC

in that each provides protection for the

investor by the regulation of the

securities industry. The rules of MOF

and the Tokyo Stock Exchange require

each firm that employs registered

representatives or registered traders to

have a positive tangible net worth and

to be able to meet its obligations when

due. In addition, the rules of the MOF

and the Tokyo Stock Exchange set forth

comprehensive financial resource and

reporting/disclosure requirements

regarding capital adequacy. Further, to

demonstrate capital adequacy, the rules

impose reporting/disclosure

requirements on broker-dealers with

respect to risk management, internal

controls, and transaction reporting and

record keeping requirements to the

effect that required records must be

produced at the request of the MOF and

the Tokyo Stock Exchange at any time.

Finally, the rules and regulations of the

MOF and the Tokyo Stock Exchange for

broker-dealers impose potential fines

and penalties that establish a

comprehensive disciplinary system.

31. In addition to the protections

afforded by the DNB and the FSA in the

case of the ING Bank London, by the

SFA in the case of ING London, and the

MOF and the Tokyo Stock Exchange

regulations in the case of ING Japan,

ING represents that the Foreign

Borrowers, including ING Bank

London,13 ING London, and ING Japan,

will comply with all applicable

provisions of Rule 15a–6 of the 1934

Act. In this regard, Rule 15a–6 provides

foreign broker-dealers with a limited

exemption from SEC registration

requirements, as described below, and

offers additional protections.

Specifically, Rule 15a–6 provides an

exemption from U.S. broker-dealer

registration for foreign broker-dealers

that induce or attempt to induce the

purchase or sale of any security

(including over-the-counter equity and

debt options) by a ‘‘U.S. institutional

investor’’ 14 or a ‘‘U.S. major

institutional investor,’’ 15 provided that

the foreign broker-dealer, among other

things, enters into these transactions

through a U.S. registered broker-dealer

intermediary.

32. Several safeguards, described

more fully below, are incorporated into

the proposed exemption to ensure the

protection of the Client Plans’ assets

involved in these securities lending

transactions. In this regard, ING

represents that under Rule 15a–6, any

Foreign Borrower that induces or

attempts to induce the purchase or sale

of any security by a U.S. institutional or

major institutional investor must,

among other things—

(a) Provide written consent to service

of process for any civil action brought

by, or proceeding before, the SEC or any

self-regulatory organization;

(b) Provide the SEC (upon request or

pursuant to agreements reached

between any foreign securities

authority, including any foreign

government, and the SEC or the U.S.

Government) with any information or

documents within the possession,

custody, or control of the foreign brokerdealer, any testimony of any such

foreign associated persons, and any

assistance in taking the evidence of

other persons, wherever located, that

the SEC requests and that relates to

transactions effected pursuant to the

rule;

(c) Rely on the U.S. registered brokerdealer 16 through which the transactions

with the U.S. institutional and major

institutional investors are effected to

(among other things):

(1) Effect the transactions, other than

negotiating their terms;

(2) Issue all required confirmations

and statements;

(3) As between the foreign brokerdealer and the U.S. registered brokerdealer, extend or arrange for the

extension of credit in connection with

the transactions;

(4) Maintain required books and

records relating to the transactions,

including those required by Rule 17a–3

(Records to be Made by Certain

Exchange Members) and Rule 17a–4

(Records to be Preserved by Certain

Exchange Members, Brokers and

Dealers) of the 1934 Act;

(5) Receive, deliver and safeguard

funds and securities in connection with

the transactions on behalf of the U.S.

institutional investor or U.S. major

institutional investor in compliance

with Rule 15c3–3 of the 1934 Act

(Customer Protection—Reserves and

Custody of Securities); and

(6) Participate in all oral

communications (e.g., telephone calls)

between the foreign associated person

and the U.S. institutional investor (not

the U.S. major institutional investor),

and accompany the foreign associated

person on all visits with both U.S.

institutional and major institutional

investors. By virtue of this participation,

the U.S. registered broker-dealer would

become responsible for the content of all

these communications.

33. In all cases, ING will maintain

records of each transaction and market

records sufficient to assure that all loans

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76303

to the ING Borrowers will be effected

under arm’s-length terms. Such records

will be provided to the Client Plan

Fiduciary, who is independent of IITC

and the ING Borrowers, in the manner

and format agreed to by such Client Plan

Fiduciary and IITC, without charge to

the Client Plan.

34. The applicants represent that the

proposed transactions are in the interest

of the Client Plans in that the lending

of securities is a low-risk method to

enable a plan to enhance its returns on

otherwise idle assets. In this regard, a

Client Plan which participates in

securities lending is able to earn a fee

for lending the securities to the

borrower while continuing to receive

the economic benefits of receiving

dividends, interest payments, and other

distributions made with respect to the

loaned securities.

35. The proposed exemption is

administratively feasible in that it will

not require any ongoing involvement by

the Department, and the proposed

conditions provide for the review and

approval of the securities borrowing

agreement by an independent Client

Plan Fiduciary. Further, it is

represented that the conditions to which

the applicants have consented are

comparable in all material respects to

other recent individual administrative

exemptions granted by the Department

under similar circumstances. In

addition, the applicants represent that

both the Plan A and Plan B

arrangements described herein

incorporate the relevant conditions

contained in class exemptions, PTCE

81–6 and PTCE 82–63. Finally, the

applicants will bear the cost of filing the

application for exemption and the costs

associated with providing notice to

interested persons, and will be

responsible for the payment of all

transfer fees and taxes related to

securities lending transactions that are

the subject of this proposed exemption.

36. In summary, the applicants

represent that the subject transactions

will satisfy the statutory criteria of

section 408(a) of the Act and section

4975(c)(2) of the Code because:

a. Plan A requires approval of the

terms of the Basic Loan Agreement and

the execution of the Agency Agreement

(or the Primary Lending Agreement) by

an independent Client Plan Fiduciary

before such Client Plan lends any

securities to an ING Borrower;

b. Under Plan B, an ING Borrower

will directly negotiate the Exclusive

Borrowing Arrangement with the Client

Plan and such arrangement may be

terminated by either party to the

arrangement at any time;

c. The lending arrangements will

permit the Client Plans to lend

securities to the ING Borrowers, which

have a substantial market position as

securities lenders, and will enable the

Client Plans to diversify the list of

eligible borrowers and earn additional

income from the loaned securities while

continuing to receive any dividends,

interest payments, and other

distributions on those securities;

d. Neither the ING Borrowers nor IITC

will exercise any discretionary authority

or control with respect to the

investment of the assets of Client Plans

involved in the securities lending

transactions, or render investment

advice with respect to those assets,

including any decisions concerning a

Client Plan’s acquisition or disposition

of securities available for lending;

e. Before a Client Plan participates in

a securities lending program under Plan

A and before entering into any securities

lending transaction under Plan A with

an ING Borrower, an independent Client

Plan Fiduciary must have: (i)

Authorized and approved the Agency

Agreement with IITC, where IITC is

acting as the direct securities lending

agent; (ii) Authorized and approved the

Primary Lending Agreement with the

primary lending agent, where IITC is

serving under a Sub-Agency Agreement

with the primary lending agent; (iii)

Approved the general terms of the Basic

Loan Agreement between such Client

Plan and the ING Borrower;

f. A Client Plan may terminate any

securities lending agency agreement at

any time without penalty on five (5)

business days’ notice;

g. By the close of business on or

before the day the loaned securities are

delivered to the ING Borrowers, IITC (or

another custodian acting on behalf of

the Client Plan) will receive from the

ING Borrowers, by various means,

collateral consisting of U.S. dollars,

securities issued or guaranteed by the

U.S. Government or its agencies or

instrumentalities, or irrevocable U.S.

bank letters of credit (issued by an

entity other than the ING Borrowers) or

other collateral permitted under PTCE

81–6;

h. The market value of the collateral

which secures any loan of securities

will at all times equal at least 102

percent (102%) of the market value of

the loaned securities;

i. The Basic Loan Agreement will give

the Client Plans a continuing security

interest in, and a lien on, the collateral

which secures any loan of securities;

j. IITC will monitor daily the level of

the collateral which secures any loan of

securities;

k. All the procedures regarding the

securities lending activities will

conform to the applicable provisions of

PTCE 81–6 and PTCE 82–63 and will be

in compliance with the applicable

banking laws of the United Kingdom

and the Netherlands, and the securities

laws of the United States, the United

Kingdom or Japan;

l. In the event the ING Borrower fails

to return securities within a designated

time, the Client Plan will have the right

under the Basic Loan Agreement to

purchase securities identical to the

borrowed securities and apply the

collateral to payment of the purchase

price;

m. If the collateral is insufficient to

satisfy the obligation of the ING

Borrower to return the Client Plan’s

securities, ING Institutional will

indemnify the Client Plan with respect

to the difference between the

replacement cost of securities and the

market value of the collateral on the

date the loan is declared in default,

together with expenses incurred by the

Client Plan plus applicable interest at a

reasonable rate;

n. The Client Plan will receive the

equivalent of all distributions made to

the holders of the borrowed securities

during the term of the loan;

o. Only those Client Plans which have

assets with an aggregate market value of

at least $50 million (except for certain

Related Client Plans or Unrelated Client

Plans whose assets are commingled in a

group trust under the conditions

discussed herein) will be permitted to

lend securities to ING Borrowers;

p. With respect to any calendar

quarter, at least 50 percent (50%) or

more of the outstanding dollar value of

securities loans negotiated on behalf of

Client Plans will be to unrelated

borrowers, unless the Client Plan has

entered into an Exclusive Borrowing

Arrangement;

q. The terms of each loan of securities

by the Client Plans to the ING Borrowers

will be at least as favorable to such

plans as those of a comparable arm’slength transaction between unrelated

parties;

r. Each Client Plan will receive

monthly reports on the securities

lending transactions, so that an

independent Client Plan Fiduciary may

monitor the securities lending

transactions with the ING Borrower;

s. Before entering into the Basic Loan

Agreement and before a Client Plan

lends any securities to an ING Borrower,

an independent Client Plan Fiduciary

will receive sufficient information

concerning the financial condition of

the ING Borrower, including the audited

76304 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

17As of May 21, 2000, the price per share for the

Stock was $13.29. Therefore, the proposed

transaction will involve approximately $8.6 million

in cash.

and unaudited financial statements of

such ING Borrower;

t. The ING Borrower will provide to

a Client Plan prompt notice at the time

of each loan by such plan of any

material adverse changes in such ING

Borrower’s financial condition, since

the date of the most recently furnished

financial statements;

u. The Client Plan will receive a

reasonable fee that is related to the

value of the borrowed securities and the

duration of the loan, or will have the

opportunity to derive compensation

through the investment of cash

collateral;

v. The loan rebate or similar fee paid

by the Client Plan to the ING Borrower

will not be greater than the fee such

Client Plan would pay an unrelated

party in an arm’s length transaction;

w. Prior to the Client Plan’s approval

of the lending of its securities to any

ING Borrowers, a copy of the final

exemption, if granted, and a copy of this

notice of pendency will be provided to

the Client Plan;

x. ING will maintain or cause to be

maintained within the United States for

a period of six (6) years from the date

of each transaction, in a manner that is

convenient and accessible for audit and

examination, such records as are

necessary to enable certain parties to

determine whether the conditions of

this exemption, if granted, have been

met; and

y. All loans involving the Foreign

Borrowers must satisfy certain

supplemental requirements, as set forth

in Section I(q), above, of this proposed

exemption.

Notice to Interested Persons

Included among those persons who

may be interested in the pendency of

the proposed exemption are the trustees

or fiduciaries of Client Plans which are

interested in lending securities to the

ING Borrowers. In this regard, the

applicant represents that because the

Client Plans which will be potentially

interested in the transactions cannot be

identified at the time the Notice of

Proposed Exemption (the Notice) is

published in the Federal Register, that

the only practical means of notifying the

trustees or fiduciaries of the Client Plans

is by publication of the Notice in the

Federal Register. Written comments

and/or requests for a hearing must be

received by the Department not later

than thirty (30) days from the date of the

publication of this proposed exemption

in the Federal Register. Further, it is

represented that prior to entering into a

securities lending agreement with a

Client Plan, the applicants will provide

the appropriate fiduciaries of such plan,

by first class mail, a copy of such Notice

and a copy of the final exemption, if

granted.

FOR FURTHER INFORMATION CONTACT:

Angelena C. Le Blanc of the Department

telephone (202) 219–8883. (This is not

a toll-free number.)

Cranston Print Works Company General

Employees’ Retirement Plan (the Plan)

Located in Cranston, Rhode Island

[Application No. D–10909]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

and section 4975(c)(2) of the Code and

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

FR 32836, 32847, August 10, 1990). If

the exemption is granted, the

restrictions of sections 406(a), 406 (b)(1)

and (b)(2) and 407(a) of the Act and the

sanctions resulting from the application

of section 4975 of the Code, by reason

of section 4975(c)(1) (A) through (E) of

the Code, shall not apply to: (1) the

proposed purchase by the Plan of shares

of common stock (the Stock) of Cranston

Print Works Company (Cranston) from

Cranston, the Plan’s sponsor; (2) the

Plan’s holding of the Stock; (3) the

acquisition and holding by the Plan of

an irrevocable put option (the Put

Option) which permits the Plan to sell

the Stock to Cranston at a price which

is the greater of: (i) the fair market value

of the Stock determined by an

independent appraisal at the time of the

exercise of the Put Option, or (ii) the

price at which the Stock originally was

sold by Cranston to the Plan; and (4) the

possible future repurchase of the Stock

by Cranston pursuant to the Put Option

or a right of refusal, provided the

following conditions are satisfied: (a)

the purchase of the Stock by the Plan

will be a one-time transaction for cash,

and no commissions will be paid by the

Plan with respect to the purchase; (b)

the Stock will represent no more than

7.5% of the value of the assets of the

Plan; (c) the Plan pays no more than the

fair market value of the Stock on the

date of the acquisition, as determined by

an independent, qualified appraiser; (d)

the transactions will be expressly

approved on behalf of the Plan by a

qualified, independent fiduciary based

upon a determination that such

acquisition is in the best interests of,

and appropriate for, the Plan; (e) the

Plan’s independent fiduciary will

monitor the holding of the Stock by the

Plan and take whatever action is

necessary to protect the Plan’s rights,

including, but not limited to, the

exercising of the Put Option if the

independent fiduciary, in its sole

discretion, determines that such

exercise is appropriate; (f) the purchase

price per share for any shares of the

Stock that are repurchased by Cranston

pursuant to the right of first refusal will

be the greater of: (i) the then current fair

market value of the Stock, as

determined by a bona fide third party

purchase offer from an unrelated party,

or (ii) the fair market value of the Stock,

as determined by a contemporaneous

independent appraisal; and (g)

Cranston’s obligation under the Put

Option is secured by an escrow

arrangement, as described herein, which

is maintained by the Plan’s independent

fiduciary as long as the Plan continues

to hold any shares of the Stock.

Summary of Facts and Representations

1. Cranston, the Plan sponsor, is

involved in the textile, trucking and

chemical industries. Equity interests in

Cranston, including the Stock, are not

publicly-traded. As of December 31,

1999, approximately 97.4% of the

outstanding shares of the Stock were

held by Cranston’s Employee Stock

Ownership Plan (the ESOP). The

balance of the outstanding Stock is held

by individual shareholders.

2. The Plan is a defined benefit

pension plan. As of December 31, 1999,

the Plan had assets with a total market

value of approximately $112,000,000.

The Plan had 1,346 participants as of

that date and an accumulated benefit

obligation of approximately

$56,400,000. The total market value of

the Plan’s assets has increased since

December 31, 1999; as of June 6, 2000,

the total was over $115 million. As of

the January 1, 2000 actuarial valuation,

the Plan had projected benefit

obligations of $56.4 million, making the

Plan better than 200% funded with

respect to the projected benefit

obligations.

3. The Plan proposes to acquire

approximately 650,000 shares of the

Stock from Cranston’s treasury.17 The

applicant represents that the Plan’s

investment in the Stock will be limited

to no more than 7.5% of the Plan’s

assets, determined immediately after the

sale. No assets of the Plan are currently

invested in any loans to, property leased

to, or securities issued by Cranston or

any of its affiliates. No commissions

will be charged with respect to the sale

of the Stock to the Plan.

4. In connection with the Plan’s

acquisition of the Stock, the Plan will

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices 76305

18The Department notes that any decision made

by the Bank as the Plan’s independent fiduciary

with respect to the exercise of the Plan’s rights

under the Put Option shall be fully subject to the

fiduciary responsibility provisions of the Act.

However, by proposing this exemption, the

Department is not expressing an opinion regarding

Continued

also obtain a Put Option from Cranston.

The Put Option, which will be

exercisable by the Plan’s independent

fiduciary (see reps. 6 and 9, below), will

permit the Plan to require Cranston to

purchase from the Plan all or any

portion of the Stock sold to the Plan

upon a determination by the Plan’s

independent fiduciary that the Stock is

no longer a prudent investment for the

Plan considering: (a) the diversification

and liquidity of the Plan’s assets; (b) the

relative size of the investment in the

Stock as a proportion of the Plan’s

overall assets; (c) the funding of the Plan

(i.e., the ratio of the Plan’s assets to its

actuarially determined obligations); and

(d) Cranston’s prospects as a long-term

investment. The purchase price to

Cranston of such Stock sold pursuant to

the Put Option will be the greater of: (i)

the fair market value of the Stock at the

time the Put Option is exercised, as

determined by an independent

appraisal, or (ii) the price at which the

Stock was sold by Cranston to the Plan.

The Plan will also give Cranston a

right of first refusal with respect to the

Stock. Thus, if the Plan proposes to sell

any or all of its shares of the Stock to

a party other than Cranston, Cranston

will have a right of first refusal to

repurchase those shares from the Plan

for cash. The purchase price per share

for any shares of Stock that are

repurchased pursuant to the right of first

refusal will be the greater of the then

fair market value for the Stock, as

determined by a bona fide third party

purchase offer from an unrelated party,

or the fair market value of the Stock as

determined by a contemporaneous

independent appraisal.

5. The applicant represents that the

acquisition of the Stock by the Plan will

be a one-time transaction for cash, and

the Plan will invest no more than 7.5%

of its assets in the Stock. The applicant

further represents that the Stock

purchased by the Plan will not be a

‘‘qualifying employer security’’ as

defined under section 407(d)(5) of the

Act, because it will not be an employer

security that satisfies the requirements

of section 407(f)(1) of the Act. In this

regard, the Stock purchased by the Plan

will not satisfy section 407(f)(1)(B) of

the Act because that section requires

that at least 50% of the aggregate

amount of the Stock which is issued and

outstanding be held by persons

independent of the issuer. Thus, since

the ESOP holds approximately 97.4% of

the Stock, the requirements of section

407(f)(1)(B) will not be met.

Accordingly, the applicant states that

the statutory exemption contained in

section 408(e) of the Act (relating to the

acquisition or sale by a plan of

qualifying employer securities) will not

apply to the proposed acquisition or

sale of the Stock by the Plan, and the

applicant has requested the relief

proposed herein.

6. In connection with the Plan’s

proposed acquisition of the Stock,

Cranston will deposit 12.5% of the sales

proceeds as the initial balance in an

escrow account (the Escrow) as an

additional safeguard to support

Cranston’s obligations to the Plan under

the Put Option. Thus, the Escrow will

ensure that the proposed transaction is

in the Plan’s best interests and

protective of the Plan. Cranston further

represents that it will add deposits of

$125,000 to the Escrow at the end of

each calendar quarter thereafter until a

total of 25% of the purchase price of the

Stock has been deposited into the

Escrow. The applicants represent that

the Escrow will be held by the Plan’s

independent fiduciary (see rep. 7,

below).

7. State Street Bank and Trust

Company (the Bank) headquartered in

Boston, Massachusetts, will act as the

Plan’s independent fiduciary for the

purposes of approving the proposed

transaction and monitoring the retention

of the Stock by the Plan after the

acquisition. Cranston has no corporate

lending or banking relationships with

the Bank and owns no interest in the

Bank either directly or indirectly. The

Bank is an industry leader in

independent fiduciary transactions.

Among other things, the Bank manages

over $75 billion in company stock as

assets in retirement and deferred

compensation plans. The Bank has

acted as an independent fiduciary in a

wide range of transactions, including

leveraged employee stock ownership

plan acquisitions, defined benefit plan

investments, mergers and acquisitions,

and initial public offerings.

8. In addition, the Bank has retained

Willamette Management Associates

(Willamette), located in Chicago,

Illinois, to act as its financial advisor in

connection with its decision to purchase

the Stock. Willamette, which has been

in operation for over 31 years, has a

national practice in providing opinions

regarding fairness and securities

valuation. Willamette has made a

preliminary determination that, as of

May 21, 2000, the Stock had a fair

market value of $13.29 per share.

Willamette developed this value for the

Stock utilizing the Capitalization of

Earnings Method and the Guideline

Publicly Traded Method. Willamette

will prepare an appraisal as of the date

of sale. In determining fair market value

on the acquisition date, Willamette will

consider the income and cash flow

capacities of Cranston. Willamette will

review prior analyses of the Stock

which have been conducted for the

ESOP, and discuss with Cranston’s

management all relevant changes to

Cranston’s financial situation since the

most recent prior analysis. Willamette

will review financial data bearing upon

recent and proposed operations, and

will consider the most current economic

environment in which Cranston

operates its business. Neither

Willamette nor any of its principals own

any interest in Cranston, and Cranston

owns no interest in Willamette.

9. The Bank represents that it will

independently review Willamette’s

valuation of the Stock, as well as the

annual valuations performed by

Management Planning, Inc. for the

ESOP for the years 1997, 1998 and 1999.

In addition, the Bank will

independently review Cranston’s

audited financial statements for the

fiscal years ending June 30, 1997, 1998

and 1999, and unaudited financial

statements for the nine month period

ending March 31, 2000. The Bank will

also review the current audited and

unaudited financial statements that are

available as of the date of the sale of the

Stock to the Plan. The Bank will

interview officers at Cranston and will

consider the purchase of the Stock in

the context of the investment goals of

the Plan.

Prior to purchasing the Stock, the

Bank, as a result of this review and

relying on the opinion of Willamette,

will make specific findings that: (a) it is

appropriate for the Plan to purchase the

Stock from Cranston; (b) such purchase

is in the Plan’s best interests; and (c) the

Plan is paying no more than adequate

consideration (i.e., fair market value) for

the Stock. The Bank represents that it

has made a preliminary determination,

based upon the advice of Willamette,

that the transaction is prudent for the

Plan and in the Plan’s best interests, and

that the proposed consideration to be

paid for the Stock by the Plan would not

be greater than its current fair market

value.

10. The Bank will have the authority

and the responsibility, as the Plan’s

independent fiduciary, to monitor the

Plan’s continued holding of the Stock.

The Bank will make all decisions for the

Plan regarding the continued holding or

disposition of the Stock.18 The Bank

76306 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Notices

whether any actions taken by the Bank would be

consistent with its fiduciary obligations under Part

4 of Title I of the Act. In this regard, section 404(a)

requires, among other things, that a plan fiduciary

act prudently, solely in the interest of the plan’s

participants and beneficiaries, and for the exclusive

purpose of providing benefits to participants and

beneficiaries when making decisions on behalf of a

plan.

will direct the Plan’s trustee with

respect to the exercise of voting and

other privileges applicable to

shareholders of Cranston, and the Plan’s

rights pursuant to the Put Option as it

deems appropriate.

11. In summary, the applicants

represent that the proposed transactions

will satisfy the criteria of section 408(a)

of the Act because: (a) the Stock will

represent no more than 7.5% of the

Plan’s assets at the time of the

acquisition; (b) the purchase price for

the Stock will be determined by an

evaluation prepared by Willamette, a

qualified independent expert in the

valuation of such securities; (c) the Plan

has received an additional safeguard in

the form of an irrevocable Put Option

which will enable the Plan, upon the

independent fiduciary’s decision, to sell

the Stock back to Cranston at a price

which is equal to the greater of the

Stock’s then current fair market value,

as determined by independent

appraisal, or the price at which the

Stock was sold by Cranston to the Plan;

(d) the Bank, an independent fiduciary

for the Plan, will determine that the

transactions are appropriate for the Plan

and in the best interests of the Plan’s

participants and beneficiaries; (e) the

Bank will monitor the holding of the

Stock and determine, among other

things, when to exercise the Put Option;

(f) any sale of the Stock by the Plan to

Cranston pursuant to Cranston’s right of

first refusal will be triggered by a

proposed sale of the Stock by the Plan

to an unrelated party pursuant to a bona

fide purchase offer, and any shares of

the Stock that are repurchased by

Cranston, under its right of first refusal,

will be for cash at a price which is equal

to the greater of the then current fair

market value of the Stock, as

determined by the bona fide third party

purchase offer, or the fair market value

of the Stock as determined by a

contemporaneous independent

appraisal; and (g) Cranston will make an

initial deposit of 12.5% of the purchase

price for the Stock into the Escrow

(which will be held by the Bank), and

will make additional deposits of

$125,000 at the close of each calendar

quarter thereafter until a total of 25% of

the purchase price for the Stock has

been deposited into the Escrow to

support Cranston’s obligations to the

Plan under the Put Option.

FOR FURTHER INFORMATION CONTACT: Gary

H. Lefkowitz 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 of the Act and/or the Code,

including any prohibited transaction

provisions to which the exemption does

not apply and the general fiduciary

responsibility provisions of section 404

of the Act, which, among other things,

require a fiduciary to discharge his

duties respecting the plan solely in the

interest of the participants and

beneficiaries of the plan and in a

prudent fashion in accordance with

section 404(a)(1)(b) of the Act; nor does

it affect the requirement of section

401(a) of the Code that the plan must

operate for the exclusive benefit of the

employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be

granted under section 408(a) of the Act

and/or section 4975(c)(2) of the Code,

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries, and

protective of the rights of participants

and beneficiaries of the plan;

(3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or the Code,

including statutory or administrative

exemptions and transitional rules.

Furthermore, the fact that a transaction

is subject to an administrative or

statutory exemption is not dispositive of

whether the transaction is in fact a

prohibited transaction; and

(4) The proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete, and

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 1st day of

December, 2000.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 00–31017 Filed 12–5–00; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

Prohibited Transaction Exemption

2000–63; [Exemption Application No.

D–10651, et al.] Grant of Individual

Exemptions; Merrill Lynch & Co., Inc.

(ML&Co.)

AGENCY: Pension and Welfare Benefits

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).

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, D.C. 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, 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.