Application Nos. and Proposed Exemptions; D-11421, Toeruna Widge IRA (the IRA); and D-11434, Credit Suisse (CS) and Its Current and Future Affiliates (Collectively the Applicant), 3281-3291 [E8-799]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 73, Number 12 (Thursday, January 17, 2008)]
[Notices]
[Pages 3281-3291]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-799]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Application Nos. and Proposed Exemptions; D-11421, Toeruna Widge 
IRA (the IRA); and D-11434, Credit Suisse (CS) and Its Current and 
Future Affiliates (Collectively the Applicant)

AGENCY: Employee Benefits Security 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 (ERISA or 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 
requests 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 requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 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.

Toeruna Widge IRA (the IRA)

Located in Mertztown, Pennsylvania

[Application No. D-11421]

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, 
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 sale (the 
Sale) of approximately 59.99 acres of unimproved real property located 
at Fredericksville Road and Sweitzer Road, Rockland Township, Berks 
County, Pennsylvania (the Property) by the IRA to Dr. Toeruna Widge 
(the Applicant), a disqualified person with respect to the IRA,\1\ 
provided that the following conditions are satisfied:
    (A) All terms and conditions of the Sale are at least as favorable 
to the IRA as those which the IRA could obtain in an arm's-length 
transaction with an unrelated party;
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    \1\ Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the 
jurisdiction of Title I of the Employee Retirement Income Security 
Act of 1974 (the Act). However, there is jurisdiction under Title II 
of the Act pursuant to section 4975 of the Code.
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    (B) The Sales price will be the greater of $390,000 or the fair 
market value of the Property as of the date of the Sale;
    (C) The fair market value of the Property has been determined by a 
qualified, independent appraiser;
    (D) The Sale is a one-time transaction for cash; and
    (E) The IRA will not pay any commissions, costs or other expenses 
in connection with the Sale.
Summary of Facts and Representations
    1. The IRA is an individual retirement account established under 
section

[[Page 3282]]

408(a) of the Code. The Applicant is the sole participant of the IRA. 
The assets of the IRA consist of the Property as well as cash in the 
amount of $2,654.89 (as of December 2006). Thus, the total amount of 
assets in the IRA, including the fair market value of the property, is 
$392,654.89. The Property represents approximately 99.32% of the total 
IRA assets. The Applicant is a physician. The Applicant and her agent, 
Thomas M. Riddle of Valley National Investments, Inc. are the only 
persons who have investment discretion over the assets in the IRA.
    The Property was originally held in the Allentown Anesthesia 
Associates, Inc. Restated Defined Contribution Pension Plan and Trust 
(the Plan), in which the Applicant was a participant. There were six 
participants in the Plan, each having their own separate account. The 
Property was originally purchased for $137,000 in 1997 for Dr. Widge's 
individually directed account. The IRA has paid $16,076.47 in real 
estate taxes from 1997 through the present date. The Plan was 
terminated because of a merger affecting the Plan sponsor. When the 
Plan was terminated in 1997, the Property was rolled over into the IRA.
    2. The Applicant requests an exemption for the Sale. The Applicant 
represents that the proposed transaction would be feasible because it 
would be a one-time transaction for cash and will enable the IRA to 
diversify its investment portfolio. Furthermore, the Applicant states 
that the transaction would be in the best interest of the IRA because 
the Sale would enable the IRA to invest the proceeds from the Sale in 
assets with a high rate of return without incurring costs such as real 
estate taxes. Finally, the Applicant represents that the transaction 
will be protective of the rights of the IRA's participant because the 
IRA will receive the greater of $390,000 or the fair market value of 
the Property, as determined by an independent, qualified appraiser on 
the date of the Sale, and will incur no commissions, costs, or other 
expenses as a result of the Sale.
    3. Robert R. DeTurck (Mr. DeTurck), a qualified, independent 
appraiser certified by the state of Pennsylvania who is associated with 
Deturck Realtors Inc., located in Reading, Pennsylvania, appraised the 
Property on August 31, 2006. Mr. DeTurck determined the Property to 
have a $390,000 fair market value. The valuation was based on the sales 
comparison approach.
    The comparison approach determines the most probable price which a 
property should bring in a competitive and open market under all 
conditions requisite to a fair sale with the buyer and seller acting 
prudently and knowledgeably, and assuming the price is not affected by 
undue stimulus.
    4. In summary, the Applicant represents that the proposed 
transaction satisfies the statutory criteria of section 4975(c)(2) of 
the Code because: (A) All terms and conditions of the Sale are at least 
as favorable to the IRA as those which the IRA could obtain in an 
arm's-length transaction with an unrelated party; (B) The Sales price 
will be the greater of $390,000 or the fair market value of the 
Property as of the date of the Sale; (C) The fair market value of the 
Property has been determined by an independent, qualified appraiser; 
(D) The Sale is a one-time transaction for cash; and (E) The IRA will 
not pay any commissions, costs or other expenses in connection with the 
Sale.
    Notice to Interested Parties: Because the Applicant is the only 
participant in the IRA, it has been determined that there is no need to 
distribute the notice of proposed exemption (the Notice) to interested 
persons. Comments and requests for a hearing are due thirty (30) days 
after publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8562 (this is not a toll-free number).

Credit Suisse (CS) and Its Current and Future Affiliates (Collectively, 
the Applicant)

Located in Zurich, Switzerland, With Offices Around the World

[Application No. D-11434]

Proposed Exemption
    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Employee 
Retirement Income Security Act of 1974 (the Act) and section 4975(c)(2) 
of the Internal Revenue Code of 1986 (the Code) and in accordance with 
the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).
Section I. Transactions
    If the proposed exemption is granted, the restrictions of section 
406 of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(F) of the Code, shall not apply to the purchase of certain securities 
(the Securities), as defined, below in Section III(h), by an asset 
management affiliate of CS, as ``affiliate'' is defined, below, in 
Section III(c), from any person other than such asset management 
affiliate of CS or any affiliate thereof, during the existence of an 
underwriting or selling syndicate with respect to such Securities, 
where a broker-dealer affiliated with CS (the Affiliated Broker-
Dealer), as defined, below, in Section III(b), is a manager or member 
of such syndicate and the asset management affiliate of CS purchases 
such Securities, as a fiduciary:
    (a) On behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined, below, in Section III(e); or
    (b) On behalf of Client Plans, and/or In-House Plans, as defined, 
below, in Section III(l), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined, below, in Section III(f); 
provided that the conditions as set forth, below, in Section II, are 
satisfied (An affiliated underwriter transaction (AUT)).\2\
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    \2\ For purposes of this proposed exemption an In-House Plan may 
engage in AUT's only through investment in a Pooled Fund.
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Section II. Conditions
    The proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following requirements:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or
    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC

[[Page 3283]]

Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible Rule 144A 
Offering of the Securities is of equity securities, the offering 
syndicate shall obtain a legal opinion regarding the adequacy of the 
disclosure in the offering memorandum;
    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased pursuant to this 
proposed exemption must have been in continuous operation for not less 
than three years, including the operation of any predecessors, unless 
the Securities to be purchased are--
    (1) Non-convertible debt securities rated in one of the four 
highest rating categories by Standard & Poor's Rating Services, Moody's 
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating 
Service Limited, Dominion Bond Rating Service, Inc., or any successors 
thereto (collectively, the Rating Organizations), provided that none of 
the Rating Organizations rates such Securities in a category lower than 
the fourth highest rating category; or
    (2) Debt securities issued or fully guaranteed by the United States 
or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States; or
    (3) Debt securities which are fully guaranteed by a person (the 
Guarantor) that has been in continuous operation for not less than 
three years, including the operation of any predecessors, provided that 
such Guarantor has issued other securities registered under the 1933 
Act; or if such Guarantor has issued other securities which are exempt 
from such registration requirement, such Guarantor has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, and such Guarantor is:
    (a) A bank; or
    (b) An issuer of securities which are exempt from such registration 
requirement, pursuant to a Federal statute other than the 1933 Act; or
    (c) An issuer of securities that are the subject of a distribution 
and are of a class which is required to be registered under section 12 
of the 1934 Act (15 U.S.C. 781), and are issued by an issuer that has 
been subject to the reporting requirements of section 13 of the 1934 
Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such securities and that has filed 
all reports required to be filed thereunder with the SEC during the 
preceding twelve (12) months.
    (d) The aggregate amount of Securities of an issue purchased, 
pursuant to this proposed exemption, by the asset management affiliate 
of CS with: (i) The assets of all Client Plans; and (ii) The assets, 
calculated on a pro-rata basis, of all Client Plans and In-House Plans 
investing in Pooled Funds managed by the asset management affiliate of 
CS; and (iii) The assets of plans to which the asset management 
affiliate of CS renders investment advice within the meaning of 29 CFR 
2510.3-21(c) does not exceed:
    (1) Ten percent (10%) of the total amount of the Securities being 
offered in an issue, if such Securities are equity securities;
    (2) Thirty-five percent (35%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in one of the four highest rating categories by at least one of the 
Rating Organizations, provided that none of the Rating Organizations 
rates such Securities in a category lower than the fourth highest 
rating category; or
    (3) Twenty-five percent (25%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in the fifth or sixth highest rating categories by at least one of the 
Rating Organizations; provided that none of the Rating Organizations 
rates such Securities in a category lower than the sixth highest rating 
category; and
    (4) The assets of any single Client Plan (and the assets of any 
Client Plans and any In-House Plans investing in Pooled Funds) may not 
be used to purchase any Securities being offered, if such Securities 
are debt securities rated lower than the sixth highest rating category 
by any of the Rating Organizations;
    (5) Notwithstanding the percentage of Securities of an issue 
permitted to be acquired, as set forth in Section II(c)(1), (2), and 
(3), above, of this proposed exemption, the amount of Securities in any 
issue (whether equity or debt securities) purchased, pursuant to this 
proposed exemption, by the asset management affiliate of CS on behalf 
of any single Client Plan, either individually or through investment, 
calculated on a pro-rata basis, in a Pooled Fund may not exceed three 
percent (3%) of the total amount of such Securities being offered in 
such issue, and;
    (6) If purchased in an Eligible Rule 144A Offering, the total 
amount of the Securities being offered for purposes of determining the 
percentages, described, above, in Section II(c)(1)-(3) and (5), is the 
total of:
    (i) The principal amount of the offering of such class of 
Securities sold by underwriters or members of the selling syndicate to 
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A 
(17 CFR 230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class of 
Securities in any concurrent public offering.
    (d) The aggregate amount to be paid by any single Client Plan in 
purchasing any Securities which are the subject of this proposed 
exemption, including any amounts paid by any Client Plan or In-House 
Plan in purchasing such Securities through a Pooled Fund, calculated on 
a pro-rata basis, does not exceed three percent (3%) of the fair market 
value of the net assets of such Client Plan or In-House Plan, as of the 
last day of the most recent fiscal quarter of such Client Plan or In-
House Plan prior to such transaction.
    (e) The covered transactions are not part of an agreement, 
arrangement, or understanding designed to benefit the asset management 
affiliate of CS or an affiliate.
    (f) The Affiliated Broker-Dealer does not receive, either directly, 
indirectly, or through designation, any selling concession, or other 
compensation or

[[Page 3284]]

consideration that is based upon the amount of Securities purchased by 
any single Client Plan, or that is based on the amount of Securities 
purchased by Client Plans or In-House Plans through Pooled Funds, 
pursuant to this proposed exemption. In this regard, the Affiliated 
Broker-Dealer may not receive, either directly or indirectly, any 
compensation or consideration that is attributable to the fixed 
designations generated by purchases of the Securities by the asset 
management affiliate of CS on behalf of any single Client Plan or any 
Client Plan or In-House Plan in Pooled Funds.
    (g)(1) The amount the Affiliated Broker-Dealer receives in 
management, underwriting, or other compensation or consideration is not 
increased through an agreement, arrangement, or understanding for the 
purpose of compensating the Affiliated Broker-Dealer for foregoing any 
selling concessions for those Securities sold pursuant to this proposed 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the asset management affiliate of CS on behalf 
of any single Client Plan, or on behalf of any Client Plan or In-House 
Plan participating in Pooled Funds, pursuant to this proposed 
exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the asset 
management affiliate of CS a written certification, dated and signed by 
an officer of the Affiliated Broker-Dealer, stating the amount that the 
Affiliated Broker-Dealer received in compensation or consideration 
during the past quarter, in connection with any offerings covered by 
this proposed exemption, was not adjusted in a manner inconsistent with 
Section II(e), (f), or (g) of this proposed exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined, below, in 
Section III(g).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described, above, in Section 
II(h), the following information and materials (which may be provided 
electronically) must be provided by the asset management affiliate of 
CS to such Independent Fiduciary:
    (1) A copy of the Notice of Proposed Exemption (the Notice) and a 
copy of the final exemption (the Grant) as published in the Federal 
Register, provided that the Notice and the Grant are supplied 
simultaneously; and
    (2) Any other reasonably available information regarding the 
covered transactions that such Independent Fiduciary requests the asset 
management affiliate of CS to provide.
    (j) Subsequent to the initial authorization by an Independent 
Fiduciary of a single Client Plan permitting the asset management 
affiliate of CS to engage in the covered transactions on behalf of such 
single Client Plan, the asset management affiliate of CS will continue 
to be subject to the requirement to provide within a reasonable period 
of time any reasonably available information regarding the covered 
transactions that the Independent Fiduciary requests the asset 
management affiliate of CS to provide.
    (k)(1) In the case of an existing employee benefit plan investor 
(or existing In-House Plan investor, as the case may be) in a Pooled 
Fund, such Pooled Fund may not engage in any covered transactions 
pursuant to this proposed exemption, unless the asset management 
affiliate of CS provides the written information, as described, below, 
and within the time period described, below, in this Section II(k)(2), 
to the Independent Fiduciary of each such plan participating in such 
Pooled Fund (and to the fiduciary of each such In-House Plan 
participating in such Pooled Fund).
    (2) The following information and materials (which may be provided 
electronically) shall be provided by the asset management affiliate of 
CS not less than 45 days prior to such asset management affiliate of CS 
engaging in the covered transactions on behalf of a Pooled Fund, 
pursuant to this proposed exemption, and provided further that the 
information described below, in this Section II(k)(2)(i) and (iii) is 
supplied simultaneously:
    (i) A notice of the intent of such Pooled Fund to purchase 
Securities pursuant to this proposed exemption, a copy of this Notice, 
and a copy of the Grant, as published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary of a plan (or 
fiduciary of an In-House Plan) participating in a Pooled Fund requests 
the asset management affiliate of CS to provide; and
    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of a plan (or fiduciary of an In-House Plan) 
participating in a Pooled Fund to terminate such plan's (or In-House 
Plan's) investment in such Pooled Fund without penalty to such plan (or 
In-House Plan). Such form shall include instructions specifying how to 
use the form. Specifically, the instructions will explain that such 
plan (or such In-House Plan) has an opportunity to withdraw its assets 
from a Pooled Fund for a period of no more than 30 days after such 
plan's (or such In-House Plan's) receipt of the initial notice of 
intent, described, above, in Section II(k)(2)(i), and that the failure 
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the asset management 
affiliate of CS in the case of a plan (or In-House Plan) participating 
in a Pooled Fund by the specified date shall be deemed to be an 
approval by such plan (or such In-House Plan) of its participation in 
the covered transactions as an investor in such Pooled Fund.
    Further, the instructions will identify CS, the asset management 
affiliate of CS, and the Affiliated Broker-Dealer and will provide the 
address of the asset management affiliate of CS. The instructions will 
state that this proposed exemption may be unavailable, unless the 
fiduciary of each plan participating in the covered transactions as an 
investor in a Pooled Fund is, in fact, independent of CS, the asset 
management affiliate of CS, and the Affiliated Broker-Dealer. The 
instructions will also state that the fiduciary of each such plan must 
advise the asset management affiliate of CS, in writing, if it is not 
an ``Independent Fiduciary,'' as that term is defined, below, in 
Section III(g).
    For purposes of this Section II(k), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this proposed exemption for each plan 
be independent of the asset management affiliate of CS shall not apply 
in the case of an In-House Plan.
    (l)(1) In the case of each plan (and in the case of each In-House 
Plan) whose assets are proposed to be invested in a Pooled Fund after 
such Pooled Fund has satisfied the conditions set forth in this 
proposed exemption to engage in the covered transactions, the 
investment by such plan (or by such In-House Plan) in the Pooled Fund 
is subject to the prior written authorization of an Independent 
Fiduciary representing such plan (or the prior written authorization by 
the

[[Page 3285]]

fiduciary of such In-House Plan, as the case may be), following the 
receipt by such Independent Fiduciary of such plan (or by the fiduciary 
of such In-House Plan, as the case may be) of the written information 
described, above, in Section II(k)(2)(i) and (ii); provided that the 
Notice and the Grant, described above in Section II(k)(2)(i), are 
provided simultaneously.
    (2) For purposes of this Section II(l), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this proposed exemption for each plan 
proposing to invest in a Pooled Fund be independent of CS and its 
affiliates shall not apply in the case of an In-House Plan.
    (m) Subsequent to the initial authorization by an Independent 
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest 
in a Pooled Fund that engages in the covered transactions, the asset 
management affiliate of CS will continue to be subject to the 
requirement to provide within a reasonable period of time any 
reasonably available information regarding the covered transactions 
that the Independent Fiduciary of such plan (or the fiduciary of such 
In-House Plan, as the case may be) requests the asset management 
affiliate of CS to provide.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the asset 
management affiliate of CS shall furnish:
    (1) In the case of each single Client Plan that engages in the 
covered transactions, the information described, below, in this Section 
II(n)(3)-(7), to the Independent Fiduciary of each such single Client 
Plan.
    (2) In the case of each Pooled Fund in which a Client Plan (or in 
which an In-House Plan) invests, the information described, below, in 
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each 
such Client Plan (and to the fiduciary of each such In-House Plan) 
invested in such Pooled Fund.
    (3) A quarterly report (the Quarterly Report) (which may be 
provided electronically) which discloses all the Securities purchased 
pursuant to this proposed exemption during the period to which such 
report relates on behalf of the Client Plan, In-House Plan, or Pooled 
Fund to which such report relates, and which discloses the terms of 
each of the transactions described in such report, including:
    (i) The type of Securities (including the rating of any Securities 
which are debt securities) involved in each transaction;
    (ii) The price at which the Securities were purchased in each 
transaction;
    (iii) The first day on which any sale was made during the offering 
of the Securities;
    (iv) The size of the issue of the Securities involved in each 
transaction;
    (v) The number of Securities purchased by the asset management 
affiliate of CS for the Client Plan, In-House Plan, or Pooled Fund to 
which the transaction relates;
    (vi) The identity of the underwriter from whom the Securities were 
purchased for each transaction;
    (vii) The underwriting spread in each transaction (i.e., the 
difference, between the price at which the underwriter purchases the 
Securities from the issuer and the price at which the Securities are 
sold to the public);
    (viii) The price at which any of the Securities purchased during 
the period to which such report relates were sold; and
    (ix) The market value at the end of the period to which such report 
relates of the Securities purchased during such period and not sold;
    (4) The Quarterly Report contains:
    (i) A representation that the asset management affiliate of CS has 
received a written certification signed by an officer of the Affiliated 
Broker-Dealer, as described, above, in Section II(g)(2), affirming 
that, as to each AUT covered by this proposed exemption during the past 
quarter, the Affiliated Broker-Dealer acted in compliance with Section 
II(e), (f), and (g) of this proposed exemption, and
    (ii) A representation that copies of such certifications will be 
provided upon request;
    (5) A disclosure in the Quarterly Report that states that any other 
reasonably available information regarding a covered transaction that 
an Independent Fiduciary (or fiduciary of an In-House Plan) requests 
will be provided, including, but not limited to:
    (i) The date on which the Securities were purchased on behalf of 
the Client Plan (or the In-House Plan) to which the disclosure relates 
(including Securities purchased by Pooled Funds in which such Client 
Plan (or such In-House Plan) invests);
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans (and the pro-rata percentage purchased on behalf of Client 
Plans and In-House Plans investing in Pooled Funds); and
    (iii) The identity of all members of the underwriting syndicate;
    (6) The Quarterly Report discloses any instance during the past 
quarter where the asset management affiliate of CS was precluded for 
any period of time from selling Securities purchased under this 
proposed exemption in that quarter because of its status as an 
affiliate of an Affiliated Broker-Dealer and the reason for this 
restriction;
    (7) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each single Client Plan 
that engages in the covered transactions that the authorization to 
engage in such covered transactions may be terminated, without penalty 
to such single Client Plan, within five (5) days after the date that 
the Independent Fiduciary of such single Client Plan informs the person 
identified in such notification that the authorization to engage in the 
covered transactions is terminated; and
    (8) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each Client Plan (and to 
the fiduciary of each In-House Plan) that engages in the covered 
transactions through a Pooled Fund that the investment in such Pooled 
Fund may be terminated, without penalty to such Client Plan (or such 
In-House Plan), within such time as may be necessary to effect the 
withdrawal in an orderly manner that is equitable to all withdrawing 
plans and to the non-withdrawing plans, after the date that that the 
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such 
notification that the investment in such Pooled Fund is terminated.
    (o) For purposes of engaging in covered transactions, each Client 
Plan (and each In-House Plan) shall have total net assets with a value 
of at least $50 million (the $50 Million Net Asset Requirement). For 
purposes of engaging in covered transactions involving an Eligible Rule 
144A Offering,\3\ each Client Plan (and each In-House Plan) shall have 
total net assets of at least $100 million in securities of issuers that 
are not affiliated with such Client Plan (or such In-House Plan, as the 
case may

[[Page 3286]]

be) (the $100 Million Net Asset Requirement).
---------------------------------------------------------------------------

    \3\ SEC Rule 10f-3(a)(4), 17 CFR Sec.  270.10f-3(a)(4), states 
that the term ``Eligible Rule 144A Offering'' means an offering of 
securities that meets the following conditions:
    (i) The securities are offered or sold in transactions exempt 
from registration under section 4(a) of the Securities Act of 1933 
[15 U.S.C. 77d(d)], rule 144A thereunder [Sec.  230.144A of this 
chapter], or rules 501-508 thereunder [Sec. Sec.  230.501-230-508 of 
this chapter];
    (ii) The securities are sold to persons that the seller and any 
person acting on behalf of the seller reasonably believe to include 
qualified institutional buyers, as defined in Sec.  230.144A(a)(1) 
of this chapter; and
    (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to 
other qualified institutional buyers pursuant to Sec.  230.144A of 
this chapter.
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    For purposes of a Pooled Fund engaging in covered transactions, 
each Client Plan (and each In-House Plan) in such Pooled Fund shall 
have total net assets with a value of at least $50 million. 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets with 
a value of at least $50 million, the $50 Million Net Asset Requirement 
will be met if 50 percent (50%) or more of the units of beneficial 
interest in such Pooled Fund are held by Client Plans (or by In-House 
Plans) each of which has total net assets with a value of at least $50 
million. For purposes of a Pooled Fund engaging in covered transactions 
involving an Eligible Rule 144A Offering, each Client Plan (and each 
In-House Plan) in such Pooled Fund shall have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or such In-House Plan, as the case may be). 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or In-House Plan, as the case may be), the $100 
Million Net Asset Requirement will be met if 50 percent (50%) or more 
of the units of beneficial interest in such Pooled Fund are held by 
Client Plans (or by In-House Plans) each of which have total net assets 
of at least $100 million in securities of issuers that are not 
affiliated with such Client Plan (or such In-House Plan, as the case 
may be), and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
    For purposes of the net asset requirements described above, in this 
Section II(o), where a group of Client Plans is maintained by a single 
employer or controlled group of employers, as defined in section 
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the 
case of an Eligible Rule 144A Offering, the $100 Million Net Asset 
Requirement) may be met by aggregating the assets of such Client Plans, 
if the assets of such Client Plans are pooled for investment purposes 
in a single master trust.
    (p) The asset management affiliate of CS qualifies as a ``qualified 
professional asset manager'' (QPAM), as that term is defined under 
Section V(a) of PTE 84-14. In addition to satisfying the requirements 
for a QPAM under Section V(a) of PTE 84-14, the asset management 
affiliate of CS must also have total client assets under its management 
and control in excess of $5 billion, as of the last day of its most 
recent fiscal year and shareholders' or partners' equity in excess of 
$1 million.
    (q) No more than 20 percent of the assets of a Pooled Fund at the 
time of a covered transaction, are comprised of assets of In-House 
Plans for which CS, the asset management affiliate of CS, the 
Affiliated Broker-Dealer, or an affiliate exercises investment 
discretion.
    (r) The asset management affiliate of CS, and the Affiliated 
Broker-Dealer, as applicable, maintain, or cause to be maintained, for 
a period of six (6) years from the date of any covered transaction such 
records as are necessary to enable the persons, described, below, in 
Section II(s), to determine whether the conditions of this proposed 
exemption have been met, except that--
    (1) No party in interest with respect to a plan which engages in 
the covered transactions, other than CS, the asset management affiliate 
of CS, and the Affiliated Broker-Dealer, as applicable, shall be 
subject to a civil penalty under section 502(i) of the Act or the taxes 
imposed by section 4975(a) and (b) of the Code, if such records are not 
maintained, or not available for examination, as required, below, by 
Section II(s); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of the asset management affiliate of CS, or the Affiliated Broker-
Dealer, as applicable, such records are lost or destroyed prior to the 
end of the six-year period.
    (s)(1) Except as provided, below, in Section II(s)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above, in Section II(r), are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described above, in Section II(s)(1)(ii)-
(iv), shall be authorized to examine trade secrets of the asset 
management affiliate of CS, or the Affiliated Broker-Dealer, or 
commercial or financial information which is privileged or 
confidential; and
    (3) Should the asset management affiliate of CS, or the Affiliated 
Broker-Dealer refuse to disclose information on the basis that such 
information is exempt from disclosure, pursuant to Section II(s)(2) 
above, the asset management affiliate of CS shall, by the close of the 
thirtieth (30th) day following the request, provide a written notice 
advising that person of the reasons for the refusal and that the 
Department may request such information.
Section III. Definitions
    (a) The term, ``the Applicant,'' means CS and its current and 
future affiliates.
    (b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer 
affiliate, as ``affiliate'' is defined, below, in Section III(c), of 
the Applicant, as ``Applicant'' is defined, above, in Section III(a), 
that meets the requirements of this proposed exemption. Such Affiliated 
Broker-Dealer may participate in an underwriting or selling syndicate 
as a manager or member. The term, ``manager,'' means any member of an 
underwriting or selling syndicate who, either alone or together with 
other members of the syndicate, is authorized to act on behalf of the 
members of the syndicate in connection with the sale and distribution 
of the Securities, as defined below, in Section III(h), being offered 
or who receives compensation from the members of the syndicate for its 
services as a manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (e) The term, ``Client Plan(s),'' means an employee benefit plan(s) 
that is subject to the Act and/or the Code, and for which plan(s) an 
asset management

[[Page 3287]]

affiliate of CS exercises discretionary authority or discretionary 
control respecting management or disposition of some or all of the 
assets of such plan(s), but excludes In-House Plans, as defined, below, 
in Section III(l).
    (f) The term, ``Pooled Fund(s),'' means a common or collective 
trust fund(s) or a pooled investment fund(s):
    (1) In which employee benefit plan(s) subject to the Act and/or 
Code invest,
    (2) Which is maintained by an asset management affiliate of CS, (as 
the term, ``affiliate'' is defined, above, in Section III(c)), and
    (3) For which such asset management affiliate of CS exercises 
discretionary authority or discretionary control respecting the 
management or disposition of the assets of such fund(s).
    (g)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a 
plan who is unrelated to, and independent of CS, the asset management 
affiliate of CS, and the Affiliated Broker-Dealer. For purposes of this 
proposed exemption, a fiduciary of a plan will be deemed to be 
unrelated to, and independent of CS, the asset management affiliate of 
CS, and the Affiliated Broker-Dealer, if such fiduciary represents in 
writing that neither such fiduciary, nor any individual responsible for 
the decision to authorize or terminate authorization for the 
transactions described above, in Section I of this proposed exemption, 
is an officer, director, or highly compensated employee (within the 
meaning of section 4975(e)(2)(H) of the Code) of CS, the asset 
management affiliate of CS, or the Affiliated Broker-Dealer, and 
represents that such fiduciary shall advise the asset management 
affiliate of CS within a reasonable period of time after any change in 
such facts occur.
    (2) Notwithstanding anything to the contrary in this Section 
III(g), a fiduciary of a plan is not independent:
    (i) If such fiduciary directly or indirectly controls, is 
controlled by, or is under common control with CS, the asset management 
affiliate of CS, or the Affiliated Broker-Dealer;
    (ii) If such fiduciary directly or indirectly receives any 
compensation or other consideration from CS, the asset management 
affiliate of CS, or the Affiliated Broker-Dealer for his or her own 
personal account in connection with any transaction described in this 
proposed exemption;
    (iii) If any officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset 
management affiliate of CS responsible for the transactions described 
above, in Section I of this proposed exemption, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the 
fiduciary responsible for the decision to authorize or terminate 
authorization for the transactions described above, in Section I.
    However, if such individual is a director of the sponsor of the 
plan or of the responsible fiduciary, and if he or she abstains from 
participation in: (A) the choice of the plan's investment manager/
adviser; and (B) the decision to authorize or terminate authorization 
for transactions described above, in Section I, then this Section 
III(g)(2)(iii) shall not apply.
    (3) The term, ``officer,'' means a president, any vice president in 
charge of a principal business unit, division, or function (such as 
sales, administration, or finance), or any other officer who performs a 
policy-making function for CS or any affiliate thereof.
    (h) The term, ``Securities,'' shall have the same meaning as 
defined in section 2(36) of the Investment Company Act of 1940 (the 
1940 Act), as amended (15 U.S.C. 80a-2(36)(2001)). For purposes of this 
proposed exemption, mortgage-backed or other asset-backed securities 
rated by one of the Rating Organizations, as defined, below, in Section 
III(k), will be treated as debt securities.
    (i) The term, ``Eligible Rule 144A Offering,'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act).
    (j) The term, ``qualified institutional buyer,'' or the term, 
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17 
CFR 230.144A(a)(1)) under the 1933 Act.
    (k) The term, ``Rating Organizations,'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., FitchRatings, Inc., 
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service, 
Inc., or any successors thereto.
    (l) The term, ``In-House Plan(s),'' means an employee benefit 
plan(s) that is subject to the Act and/or the Code, and that is 
sponsored by the Applicant, as defined, above, in Section III(a) for 
its own employees.

Summary of Facts and Representations

The Applicant

    1. The Applicant consists of CS and its current and future 
affiliates. CS, a business unit of Zurich-based Credit Suisse Group, is 
a leading global investment bank with numerous institutional and other 
clients. CS's business lines include securities underwriting, sales and 
trading, private equity, financial advisory services, investment 
research and asset management. Credit Suisse Asset Management 
Securities, Inc. and Credit Suisse Securities (USA) LLC are registered 
broker-dealers (hereinafter, collectively with any other current and 
future broker-dealer affiliates, ``the Affiliated Broker-Dealer'') and 
are regulated by the SEC under Section 15 of the 1934 Act. Credit 
Suisse Asset Management, LLC (CSAM) focuses on institutional, mutual 
fund and private client investors, in the Americas, Asia Pacific, and 
Europe. CSAM is an investment adviser registered under the 1940 Act. As 
of December 31, 2006, CS had assets under management of approximately 
$1.2 trillion and shareholder equity of approximately $34.7 billion.
    2. The Applicant is regulated by federal government agencies, such 
as the SEC, as well as by state government agencies, and industry self-
regulatory organizations (e.g., the New York Stock Exchange and the 
National Association of Securities Dealers).

Requested Exemption

    3. The Applicant requests a prohibited transaction exemption that 
would permit the purchase of certain Securities by an asset management 
affiliate of CS (the Asset Manager), acting on behalf of Client Plans 
subject to the Act or Code, and acting on behalf of Client Plans and 
In-House Plans which are invested in certain Pooled Funds for which an 
Asset Manager acts as a fiduciary, from any person other than such 
Asset Manager or any affiliate thereof, during the existence of an 
underwriting or selling syndicate with respect to such Securities, 
where an Affiliated Broker-Dealer is a manager or member of such 
syndicate. Further, the Affiliated Broker-Dealer will receive no 
selling concessions in connection with the Securities sold to such 
plans.
    4. The Applicant represents that if the Affiliated Broker-Dealer is 
a member of an underwriting or selling syndicate, the Asset Manager may 
purchase underwritten securities for Client Plans in accordance with 
Part III of Prohibited Transaction Exemption (PTE) 75-1, (40 FR 50845, 
October 31, 1975). Part III provides limited relief from the Act's 
prohibited transaction provisions for plan fiduciaries that purchase 
securities from an underwriting or selling syndicate of which the 
fiduciary or an affiliate is a member. However, such relief is not 
available if the Affiliated Broker-Dealer manages the underwriting or 
selling syndicate.

[[Page 3288]]

    5. In addition, regardless of whether a fiduciary or its affiliate 
is a manager or merely a member of an underwriting or selling 
syndicate, PTE 75-1 does not provide relief for the purchase of 
unregistered securities. This includes securities purchased by an 
underwriter for resale to a ``qualified institutional buyer'' (QIB) 
pursuant to the SEC's Rule 144A under the 1933 Act. Rule 144A is 
commonly utilized in connection with sales of securities issued by 
foreign corporations to U.S. investors that are QIBs. Notwithstanding 
the unregistered nature of such shares, it is represented that 
syndicates selling securities under Rule 144A (Rule 144A Securities) 
are the functional equivalent of those selling registered securities.
    6. The Applicant represents that the Affiliated Broker-Dealer 
regularly serves as manager of underwriting or selling syndicates for 
registered securities, and as a manager or a member of underwriting or 
selling syndicates for Rule 144A Securities. Accordingly, the Asset 
Manager is currently unable to purchase on behalf of the Client Plans 
both registered securities and Rule 144A Securities sold in such 
offerings, resulting in such Client Plans being unable to participate 
in significant investment opportunities.
    7. It is represented that since 1975, there has been a significant 
amount of consolidation in the financial services industry in the 
United States. As a result, there are more situations in which a plan 
fiduciary may be affiliated with the manager of an underwriting 
syndicate. Further, many plans have expanded investment portfolios in 
recent years to include securities issued by foreign corporations. As a 
result, the exemption provided in PTE 75-1, Part III, is often 
unavailable for purchase of domestic and foreign securities that may 
otherwise constitute appropriate plan investments.

Client Plan Investments in Offered Securities

    8. The Applicant represents that the Asset Manager makes its 
investment decisions on behalf of, or renders investment advice to, 
Client Plans pursuant to the governing document of the particular 
Client Plan or Pooled Fund and the investment guidelines and objectives 
set forth in the management or advisory agreement. Because the Client 
Plans are covered by Title I of the Act, such investment decisions are 
subject to the fiduciary responsibility provisions of the Act.
    9. The Applicant states, therefore, that the decision to invest in 
a particular offering is made on the basis of price, value and a Client 
Plan's investment criteria, not on whether the securities are currently 
being sold through an underwriting or selling syndicate. The Applicant 
further states that, because the Asset Manager's compensation for its 
services is generally based upon assets under management, the Asset 
Manager has little incentive to purchase securities in an offering in 
which the Affiliated Broker Dealer is an underwriter unless such a 
purchase is in the interests of Client Plans. If the assets under 
management do not perform well, the Asset Manager will receive less 
compensation and could lose clients, costs which far outweigh any gains 
from the purchase of underwritten securities.\4\
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    \4\ In fact, under the terms of the proposed exemption set forth 
herein, the Affiliated Broker-Dealer may receive no compensation or 
other consideration, direct or indirect, in connection with any 
transaction that would be permitted under the proposed exemption.
---------------------------------------------------------------------------

    10. The Applicant states that the Asset Manager generally purchases 
securities in large blocks because the same investments will be made 
across several accounts. If there is a new offering of an equity or 
fixed income security that the Asset Manager wishes to purchase, it may 
be able to purchase the security through the offering syndicate at a 
lower price than it would pay in the open market, without transaction 
costs and with reduced market impact if it is buying a relatively large 
quantity. This is because a large purchase in the open market can cause 
an increase in the market price and, consequently, in the cost of the 
securities. Purchasing from an offering syndicate can thus reduce the 
costs to the Client Plans.
    11. However, absent this proposed exemption, if the Affiliated 
Broker-Dealer is a manager of a syndicate that is underwriting a 
securities offering, the Asset Manager will be foreclosed from 
purchasing any securities on behalf of its Client Plans from that 
underwriting syndicate. This will force the Asset Manager to purchase 
the same securities in the secondary market. In such a circumstance, 
the Client Plans may incur greater costs both because the market price 
is often higher than the offering price, and because of transaction and 
market impact costs. In turn, this may cause the Asset Manager to 
forego other investment opportunities because the purchase price of the 
underwritten security in the secondary market exceeds the price that 
the Asset Manager would have paid to the selling syndicate.

Underwriting of Securities Offerings

    12. The Applicant represents that the Affiliated Broker-Dealer 
currently manages and participates in firm commitment underwriting 
syndicates for registered offerings of both equity and debt securities. 
While equity and debt underwritings may operate differently with regard 
to the actual sales process, the basic structures are the same. In a 
firm commitment underwriting, the underwriting syndicate acquires the 
securities from the issuer and then sells the securities to investors.
    13. The Applicant represents that while, as a legal matter, a 
selling syndicate assumes the risk that the underwritten securities 
might not be fully sold, as a practical matter, this risk is reduced, 
in marketed deals, through ``building a book'' (i.e., taking 
indications of interest from potential purchasers) prior to pricing the 
securities. Accordingly, there is no incentive for the underwriters to 
use their discretionary accounts (or the discretionary accounts of 
their affiliates) to buy up the securities as a way to avoid 
underwriting liabilities.
    14. Each selling syndicate has a lead manager, who is the principal 
contact between the syndicate and the issuer and who is responsible for 
organizing and coordinating the syndicate. The syndicate may also have 
co-managers, who generally assist the lead manager in working with the 
issuer to prepare the registration statement to be filed with the SEC 
and in distributing the underwritten securities. While equity 
syndicates typically include additional members that are not managers, 
more recently, membership in many debt underwriting syndicates has been 
limited to lead and co-managers.
    15. If more than one underwriter is involved in a selling 
syndicate, the lead manager, who has been selected by the issuer of the 
underwritten securities, contacts other underwriters, and the 
underwriters enter into an ``Agreement Among Underwriters.'' Most lead 
managers have a standing form of agreement. This document is then 
supplemented for the particular deal by sending an ``invitation telex'' 
or ``terms telex'' that sets forth particular terms to the other 
underwriters.
    16. The arrangement between the syndicate and the issuer of the 
underwritten securities is embodied in an underwriting agreement, which 
is signed on behalf of the underwriters by one or more of the managers. 
In a firm commitment underwriting, the underwriting agreement provides, 
subject to certain closing conditions,

[[Page 3289]]

that the underwriters are obligated to purchase the underwritten 
securities from the issuer in accordance with their respective 
commitments. This obligation is met by using the proceeds received from 
the buyers of the securities in the offering, although there is a risk 
that the underwriters will have to pay for a portion of the securities 
in the event that not all of the securities are sold.
    17. The Applicant represents that, generally, the risk that the 
securities will not be sold is small because the underwriting agreement 
is not executed until after the underwriters have obtained sufficient 
indications of interest to purchase the securities from a sufficient 
number of investors to assure that all the securities being offered 
will be acquired by investors. Once the underwriting agreement is 
executed, the underwriters immediately begin contacting the investors 
to confirm the sales, at first by oral communication and then by 
written confirmation. Sales are finalized within hours and sometimes 
minutes. In registered transactions, the underwriters are particularly 
anxious to complete the sales as soon as possible because until they 
``break syndicate,'' they cannot enter the market. In many cases, the 
underwriters will act as market-makers for the security. A market-maker 
holds itself out as willing to buy or sell the security for its own 
account on a regular basis.
    18. The Applicant represents that the process of ``building a 
book'' or soliciting indications of interest occurs as follows: In a 
registered equity offering, after a registration statement is filed 
with the SEC and, while it is under review by the SEC staff, 
representatives of the issuer of the securities and the selling 
syndicate managers conduct meetings with potential investors, who learn 
about the company and the underwritten securities. Potential investors 
also receive a preliminary prospectus. The underwriters cannot make any 
firm sales until the registration statement is declared effective by 
the SEC. Prior to the effective date, while the investors cannot become 
legally obligated to make a purchase, they indicate whether they have 
an interest in buying, and the managers compile a ``book'' of investors 
who are willing to ``circle'' a particular portion of the issue. These 
indications of interest are sometimes referred to as a ``soft circle'' 
because investors cannot be legally bound to buy the securities until 
the registration statement is effective. However, the Applicant 
represents that investors generally follow through on their indications 
of interest, and would be expected to do so, barring any sudden adverse 
developments (in which case it is likely that the offering would be 
withdrawn or the price range modified and the process restarted), 
because, if the investors that gave an indication of interest do not 
follow through, the underwriters may be reluctant to include them in 
future offerings.
    19. Assuming that the marketing efforts have produced sufficient 
indications of interest, the Applicant represents that the issuer of 
the securities and the selling syndicate managers together will set the 
price of the securities and ask the SEC to declare the registration 
effective. After the registration statement becomes effective and the 
underwriting agreement is executed, the underwriters contact those 
investors that have indicated an interest in purchasing securities in 
the offering to execute the sales. The Applicant represents that 
offerings are often oversubscribed, and many have an over-allotment 
option that the underwriters can exercise to acquire additional shares 
from the issuer. Where an offering is oversubscribed, the underwriters 
decide how to allocate the securities among the potential purchasers. 
However, if an issue is a ``hot issue,'' (i.e., it is selling in the 
market at a premium above its offering price) the underwriters may not 
hold this hot issue in their own accounts, nor sell it to their 
employees, officers and directors. Subject to certain exceptions, a hot 
issue may also not be sold to the personal accounts of those 
responsible for investing for others, such as officers of banks, 
insurance companies, mutual funds and investment advisers.
    20. The Applicant represents that debt offerings may be 
``negotiated'' offerings, ``competitive bid'' offerings, or ``bought 
deals.'' ``Negotiated'' offerings, which often involve non-investment 
grade securities, are conducted in the same manner as an equity 
offering with regard to when the underwriting agreement is executed and 
how the securities are offered. ``Competitive bid'' offerings, in which 
the issuer determines the price for the securities through competitive 
bidding rather than negotiating the price with the underwriting 
syndicate, are performed under ``shelf'' registration statements 
pursuant to the SEC's Rule 415 under the 1933 Act (17 CFR 230.415).\5\
---------------------------------------------------------------------------

    \5\ Rule 415 permits an issuer to sell debt as well as equity 
securities under an effective registration statement previously 
filed with the SEC by filing a post-effective amendment or 
supplemental prospectus.
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