[Federal Register Volume 65, Number 235 (Wednesday, December 6, 2000)]
[Notices]
[Pages 76292-76306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31017]



[[Page 76292]]

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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.

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

Written Comments and Hearing Requests

    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. ______, 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.
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    \1\ Pursuant 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.
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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 Sea-Dog 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 Sea-Land.\3\
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    \2\ The 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.
    \3\ The 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 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.

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[[Page 76293]]

    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\
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    \4\ The 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.
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    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 Sea-Land.
    5. The applicants propose that Sea-Land 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 one-
half 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:
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    \5\ For 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.
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    (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

[[Page 76294]]

securities lending arrangements referred to herein as Plan A and Plan 
B; and
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    \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.
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    (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 sub-agency 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\
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    \8\ The 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).
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    (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 
sub-agency) 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

[[Page 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 broker-
dealers 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

[[Page 76296]]

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.
---------------------------------------------------------------------------

    \9\ As such, shares of the ING Groep are registered pursuant to 
section 12(b) of the 1934 Act.
---------------------------------------------------------------------------

    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 credit-worthiness 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 
sub-agent 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

[[Page 76297]]

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 broker-dealer, 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 sub-agent),\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\
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    \10\ Future 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.
    \11\ PTCE 81-6 provides an exemption under certain conditions 
from section 406(a)(1)(A) through (D) of the Act and the 
corresponding provisions of section 4975(c) of the Code for the 
lending of securities that are assets of an employee benefit plan to 
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.
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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-to-market, 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

[[Page 76298]]

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 sub-agency 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.
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    \12\ An 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).
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    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

[[Page 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.

[[Page 76300]]

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

[[Page 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

[[Page 76302]]

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.
---------------------------------------------------------------------------

    \13\ Section 3(a)(4) of the 1934 Act defines ``broker'' to mean 
``any person engaged in the business of effecting transactions in 
securities for the account of others, but it does not include a 
bank.'' Section 3(a)(5) of the 1934 Act provides a similar exclusion 
for ``banks'' in the definition of the term ``dealer.'' However, 
section 3(a)(6) of the 1934 Act defines ``bank'' to mean a banking 
institution organized under the laws of the United States or a State 
of the United States. Further, Rule 15(a)(6)(b)(2) provides that the 
term ``foreign broker or dealer'' means ``any non-U.S. resident 
person . . . whose securities activities, if conducted in the United 
States, would be described by the definition of ``broker'' or 
``dealer'' in sections 3(a)(4) or 3(a)(5) of the 1934 Act. 
Therefore, the test of whether an entity is a ``foreign broker'' or 
``dealer'' is based on the nature of such foreign entity's 
activities and, with certain exceptions, only banks that are 
regulated by either the United States or a State of the United 
States are excluded from the definition of the term ``broker'' or 
``dealer.'' Thus, for purposes of this exemption request, the 
applicants will comply with the applicable provisions and relevant 
SEC interpretations and amendments of Rule 15a-6 with respect to all 
Foreign Borrowers.
    \14\ The term ``U.S. institutional investor,'' as defined in 
Rule 15a-6(b)(7), includes an employee benefit plan within the 
meaning of the Act, if (a) the investment decision is made by a plan 
fiduciary, as defined in section 3(21) of the Act, which is either a 
bank, savings and loan association, insurance company, or registered 
investment adviser, or (b) the employee benefit plan has total 
assets in excess of $5 million, or (c) the employee benefit plan is 
a self-directed plan with investment decisions made solely by 
persons that are ``accredited investors,'' as defined in Rule 
501(a)(1) of Regulation D of the Securities Exchange Act of 1933, as 
amended.
    \15\ The 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.
---------------------------------------------------------------------------

    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 
broker-dealer, any testimony of any such foreign associated persons, 
and any assistance in taking the evidence of other persons, wherever 
located, that the SEC requests and that relates to transactions 
effected pursuant to the rule;
    (c) Rely on the U.S. registered broker-dealer \16\ through which 
the transactions with the U.S. institutional and major institutional 
investors are effected to (among other things):
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (1) Effect the transactions, other than negotiating their terms;
    (2) Issue all required confirmations and statements;
    (3) As between the foreign broker-dealer and the U.S. registered 
broker-dealer, extend or arrange for the extension of credit in 
connection with the transactions;
    (4) Maintain required books and records relating to the 
transactions, including those required by 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

[[Page 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's-length 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

[[Page 76304]]

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.
---------------------------------------------------------------------------

    \17\ As 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.
---------------------------------------------------------------------------

    4. In connection with the Plan's acquisition of the Stock, the Plan 
will

[[Page 76305]]

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

[[Page 76306]]

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.
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    \18\ The 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 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.
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    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