[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36958-36963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18010]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
Prohibited Transaction Exemption 98-32; Exemption Application No.
D-10459, et al.]; Grant of Individual Exemptions; Union Bank of
Switzerland
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Union Bank of Switzerland (UBS/Swiss) and UBS Securities, LLC (UBS
Securities) Located in Zurich, Switzerland and New York, New York,
Respectively
[Prohibited Transaction Exemption 98-32; Exemption Application Nos. D-
10459 and D-10460]
Exemption
The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1)
and (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 the (1) lending of securities to
UBS/Swiss, UBS Securities, UBS Ltd. (UBS/UK), UBS Securities Limited
(UBS/Japan) and their successors in interest, which are or will
[[Page 36959]]
be affiliated domestic or foreign broker-dealers of UBS
Securities,1 by employee benefit plans (the Client Plans or
Plans), including commingled investment funds holding plan assets, for
which UBS/Swiss, acting through its New York branch in connection with
securities lending activities (UBS NY), an affiliate of the proposed
UBS Borrowers, may serve as a securities lending agent, sub-agent, or
as a custodian or a directed trustee to Client Plans under either of
two securities lending arrangements, referred to herein as ``Plan A''
or ``Plan B''; and (2) the receipt of compensation by UBS NY in
connection with these transactions.
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\1\ For purposes of this exemption, UBS/Swiss, UBS/UK, UBS/Japan
and their successors in interest are collectively referred to as the
UBS Foreign Borrowers. In addition, UBS Securities, including its
successor in interest, and the UBS Foreign Borrowers are together
referred to herein as the UBS Borrowers or individually as a UBS
Borrower.
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This exemption is subject to the following conditions:
(a) For each Client Plan, neither UBS NY, any of the UBS Borrowers
nor any affiliate of those entities has discretionary authority or
control with respect to the investment of the Plan assets involved in
the transaction, or renders investment advice [within the meaning of 29
CFR 2510.3-21(c)] with respect to those assets.
(b) With regard to--
(1) Plan A, under which UBS NY lends securities of a Client Plan to
any UBS Borrowers in either an agency or sub-agency capacity, such
arrangement is approved in advance by a Plan fiduciary who is
independent of UBS NY and the UBS Borrower and is negotiated by UBS NY
which acts as a liaison between the lender and the borrower to
facilitate the securities lending transaction.2
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\2\ The Department, herein, is not providing exemptive relief
for securities lending transactions engaged in by primary lending
agents, other than UBS NY, beyond that provided pursuant to
Prohibited Transaction Exemption (PTE) 81-6 (46 FR 7527, January 23,
1981, as amended at 52 FR 18754, May 19, 1987) and PTE 82-63 (47 FR
14804, April 6, 1982).
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(2) Plan B, under which the UBS Borrower directly negotiates the
agreement with the fiduciary of a Client Plan, including a Plan for
which UBS NY provides services with respect to the portfolio of
securities to be loaned pursuant to an exclusive borrowing arrangement
(the Exclusive Borrowing Arrangement), such Client Plan fiduciary is
independent of both the UBS Borrower and UBS NY, and UBS NY does not
participate in any such negotiations.
(c) The independent fiduciary of a Client Plan approves the general
terms of the securities loan agreement (the Loan Agreement) between the
Client Plan and the UBS Borrower.
(d) The terms of each loan of securities by a Client Plan to a UBS
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 the agency or sub-agency
arrangement under Plan A or an Exclusive Borrowing Agreement under Plan
B at any time, without penalty, on five business days notice, whereupon
the UBS Borrowers will deliver certificates for securities identical to
the borrowed securities (or the equivalent thereof in the event of
reorganization, recapitalization or merger of the issuer of the
borrowed securities) to the Client Plan within--
(1) The customary delivery period for such securities;
(2) Five business days; or
(3) The time negotiated for such delivery by the Client Plan and
the UBS Borrowers, whichever is less.
(f) The Client Plan or its designee receives from each UBS Borrower
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 the UBS Borrower, collateral consisting of U.S. currency,
securities issued or guaranteed by the United States Government or its
agencies or instrumentalities, or irrevocable bank letters of credit
issued by a U.S. bank, other than UBS NY or an affiliate thereof, or
any combination thereof, or other collateral permitted under PTE 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 of the
market value of the loaned securities. The applicable Loan Agreement
gives the Client Plan a continuing security interest in and a lien on
the collateral. The level of collateral is monitored daily (either by
UBS NY under Plan A, or by UBS NY or another 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 of the market
value of the loaned securities at the close of business on that day,
the UBS Borrower is required to deliver, by the close of business on
the next day, sufficient additional collateral to bring the level to at
least 102 percent.
(h) Prior to entering into a Loan Agreement, the applicable UBS
Borrower furnishes each Client Plan its most recently available audited
and unaudited statements to UBS NY, and in turn, such statements are
provided to the Client Plan before the Client Plan approves the terms
of the Loan Agreement. The Loan Agreement contains a requirement that
the applicable UBS 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, UBS NY does not make any further loans
to the UBS Borrower unless an independent fiduciary of the Client Plan
is provided notice of any material change and approves the loan in view
of the changed financial condition.
(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 UBS Borrowers, 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 procedures regarding the securities lending activities
will, at a minimum, conform to the applicable provisions of PTEs 81-6
and 82-63 as well as to applicable securities laws of the United
States, Switzerland, the United Kingdom or Japan.
(k) UBS NY agrees to indemnify and hold harmless the Client Plan in
the United States (including the sponsor and fiduciaries of such Client
Plan) for any transactions covered by this exemption with a UBS
Borrower so that the Client Plan does not have to litigate, in the case
of a UBS Foreign Borrower, in a foreign jurisdiction nor sue the UBS
Foreign Borrower to realize on the indemnification. Such
indemnification, by UBS NY, is against any and all reasonably
foreseeable damages, losses, liabilities, costs and expenses (including
attorney's fees) which the Client Plan may incur or suffer, arising
from any impermissible use by the UBS Borrower of the loaned securities
or from an event of default arising from the UBS Borrower's failing to
deliver loaned securities in accordance with the applicable Loan
Agreement or to otherwise comply with the terms of such agreement,
except to the extent that such losses or damages are caused by the
Client Plan's own negligence.
[[Page 36960]]
(1) If any event of default occurs, UBS NY, promptly and at its own
expense (subject to rights of subrogation in, to the collateral and
against such borrower), purchases or causes to be purchased, for the
account of the Client Plan, securities identical to the borrowed
securities (or their equivalent as discussed above). If the collateral
is insufficient to accomplish such purchase, UBS NY indemnifies the
Client Plan for any shortfall in the collateral plus interest, if
contractually applicable, 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, UBS NY pays 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 UBS
Borrower's failure to return the securities within the 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, including all interest and
dividends on the loaned securities during the loan period.
(m) Prior to any Client Plan's approval of the lending of its
securities to any UBS Borrower, copies of the notice of proposed
exemption (the Notice) and the final exemption are provided to the
Client Plan.
(n) Each Client Plan receives monthly reports with respect to
securities lending transactions, including, but not limited to, the
information described in Representation 26 of the Summary of Facts and
Representations (the Summary) of the Notice, so that an independent
fiduciary of a Client Plan may monitor such transactions with the UBS
Borrower.
(o) Only Client Plans with total assets having an aggregate market
value of at least $50 million are permitted to lend securities to UBS
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 (i.e., the Related 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 UBS Borrowers, the foregoing $50 million requirement
is 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
Client 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 (i.e., 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 UBS Borrowers, the foregoing $50 million requirement
is deemed 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 Client 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 or
more of the outstanding dollar value of securities loans negotiated on
behalf of Client Plans will be to unrelated borrowers.
(q) In addition to the above, all loans involving UBS Foreign
Borrowers, have the following requirements:
(1) Such Foreign Borrower is registered as a broker-dealer with the
Securities and Futures Authority of the United Kingdom in the case of
UBS/UK, the Swiss Federal Banking Commission in the case of UBS/Swiss,
and the Ministry of Finance, in the case of UBS/Japan;
(2) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities
Exchange Act of 1934 which provides for foreign broker-dealers a
limited exemption from United States registration requirements;
(3) All collateral is maintained in United States dollars or U.S.
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 Loan Agreement under Plan
A or the Exclusive Borrowing Agreement 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 a transaction involving a UBS Foreign Borrower, the
applicable UBS Foreign Borrower--
(A) Agrees to submit to the jurisdiction of the United States;
(B) Agrees to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(C) Consents to service of process on the Process Agent; and
(D) Agrees that enforcement by a Client Plan of the indemnity
provided by UBS New York will occur in the United States courts.
(r) UBS NY and each UBS Foreign Borrower maintain, or cause to
maintain within the United States for a period of six years from the
date of such transaction, in a manner that is convenient and accessible
for audit and examination, such records as are necessary to enable the
persons described in paragraph (s)(1) to determine whether the
conditions of the exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of UBS NY and/or
its affiliates, the records are lost or destroyed prior to the end of
the six year period; and
(2) No party in interest other than UBS NY or its affiliates shall
be subject to the civil penalty that may be assessed
[[Page 36961]]
under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if the records are not maintained, or are
not available for examination as required below by paragraph (s)(1).
(s)(1) Except as provided in subparagraph (s)(2) of this paragraph
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (r) are
unconditionally available at their customary location 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;
(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 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.
(s)(2) None of the persons described above in paragraphs
(s)(1)(B)--(s)(1)(D) of this paragraph (s)(1) are authorized to examine
the trade secrets of UBS NY or its affiliates or commercial or
financial information which is privileged or confidential.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the Notice published on March 31, 1998 at 63 FR 15452.
Written Comments
During the comment period, the Department received one written
comment with respect to the Notice and no requests for a public
hearing. The comment letter was submitted by UBS/Swiss and UBS
Securities (together, the Applicants) and is intended to clarify the
operative language of the Notice and the Summary. Presented below are a
discussion of the Applicants' comments and the Department's responses.
General Comments
The Applicants wish to make the following general comments to
reflect changed circumstances since the original filing of the
exemption application.
1. Successors in Interest. The Applicants represent that there is
currently a pending merger between UBS Swiss and Swiss Bank. The
transaction, which has not been structured as an asset sale but rather
as a transfer of stock, would result in the formation of a new entity
that would be named ``UBS AG.'' In effect, the Applicants state that
the shareholders of UBS Swiss and Swiss Bank would surrender shares of
stock in their respective entities in exchange for shares of UBS AG.
Following the merger, UBS Securities would be renamed ``Warburg Dillon
Read LLC.'' The names of UBS/UK and UBS/Japan would remain unchanged.
The Applicants state that they have obtained final regulatory approval
and anticipate that the merger will be consummated by the end of June
1998.
To ensure that the requested exemption will still be effective
following the merger, the Applicants have requested that it be revised,
as necessary, to extend to successors in interest to the Applicants and
their affiliates. Therefore, the Department has revised the operative
language of the exemption by making it applicable to successors in
interest to UBS Swiss, UBS Securities and their affiliates, including
UBS NY and the UBS/UK and UBS/Japan.
2. Representation 1(b) of the Summary. The last sentence in the
second paragraph of Representation 1(b) of the Summary states that
``All borrowings by UBS Securities must conform to applicable
provisions of the Federal Reserve Board's Regulation T.'' The
Applicants note that Regulation T has been amended as of April 1, 1998
and therefore, believe that a representation as to compliance with
Regulation T should be made only to the extent it is applicable to the
UBS Borrower and the transaction. Accordingly, the Applicants suggest
that the last sentence of Representation 1(b) be revised to read as
follows:
All borrowings by UBS Securities must conform to applicable
provisions of the Federal Reserve Board's Regulation T, to the
extent that such regulation is applicable to UBS Securities and to
the transaction.
In concurrence, the Department has made the requested change in
Representation 1(b) of the Notice.
Specific Comments
1. Operative Language of the Notice and Representation 8 of the
Summary. In the operative language of the Notice, the introductory
paragraph and Representation 8 of the Summary briefly state that UBS NY
may serve as a securities lending agent, a sub-agent or as a custodian
or a directed trustee to Client Plans under either of two securities
lending arrangements, which are referred to therein as ``Plan A'' and
``Plan B.'' To clarify the statements made in these paragraphs, the
Applicants point out that when UBS NY effects securities lending
activities on behalf of a Client Plan, it may be acting as a lending
agent or a sub-agent pursuant to discrete agency documentation or
pursuant to authority granted under a trust or custodial agreement with
the Client Plan which expressly includes the securities lending
activity.
The Department has noted the clarification offered by the
Applicants.
2. Condition (k) of the Notice and Representations 23 and 38 of the
Summary. The Applicants suggest that the Department revise Condition
(k) of the Notice and Representation 23 and 38 of the Summary to
reflect more accurately the scope of the indemnification given by UBS
NY to a Client Plan. In this regard, the Applicants recommend that the
second sentence of Condition (k) and the second sentence of
Representation 38 be modified by striking the phrase ``the failure of
the UBS Borrower'' and inserting the phrase ``from an event of default
arising from the UBS Borrower's failing * * *'' after the word ``or.''
In response, the Department concurs with the requested
modifications and has revised the Notice, accordingly. Although
Representation 23 of the Summary contains language similar to that of
Condition (k) and Representation 38, the Department has not made a
corresponding change since the language contained therein already
appears to embody the Applicants' requested modification.
3. Condition (k)(1) of the Notice and Representation 23 of the
Summary. The Applicants note that UBS NY will perform its indemnity
within one business day of the insolvency event (either by (1) paying
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 or (2) by purchasing securities identical to the
borrowed securities and applying the collateral to payment of the
purchase price and any other expenses of the Client Plan that may be
associated with the sale and/or purchase. Because UBS NY generally
performs its indemnity by the next business day, the Applicants
represent that UBS NY does not pay interest on any shortfall in
collateral arising from other than reinvestment risk but it does bear
the transaction costs of performing the indemnity. However, in the
event UBS NY is ever required to pay interest to a Client Plan, the
Applicants request that the phrase ``if contractually applicable'' be
inserted following the reference to ``interest'' in Condition
[[Page 36962]]
(k)(1) and in the second sentence of the second paragraph in
Representation 23.
In response, the Department has made the change requested by the
Applicants.
4. Condition (o)(2)(A) of the Notice and Representation 28(a) of
the Summary.
Condition (o)(2) of the Notice provides that--
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 UBS Borrowers, the foregoing $50 million requirement is deemed
satisfied if such trust or other entity has aggregate assets which are
in excess of $50 million; provided that the fiduciary responsible for
making the investment decision on behalf of such group trust or other
entity--
(A) Is neither the sponsoring employer, a member of the controlled
group of corporations, the employee organization, nor an affiliate;
(B) Has full investment responsibility with respect to Client Plan
assets invested therein; and
(C) Has total assets under its management and control, exclusive of
the $50 million threshold amount attributable to Client Plan investment
in the commingled entity, which are in excess of $100 million.
Representation 28 of the Summary contains a similar provision. The
Department believes that subparagraph (A) above and clause (a) of
Representation 28 unnecessarily limit the ability of a Client Plan to
effect securities loans under the proposed lending program,
particularly in a situation where the independent investment manager's
own in-house plan wishes to invest in the commingled investment
vehicle. Therefore, the Department has modified the Condition and
Representation to read as follows:
In the case of two or more Client Plans which are not maintained
by the same employer, controlled group of corporations or employee
organization (i.e., 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 UBS 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 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 effect, the independent investment manager's own plan may
participate in the commingled investment vehicle but for purposes of
determining whether the $50 million aggregation requirement is met, the
assets of the Unrelated Plans must be utilized.
5. Condition (q)(5)(D) of the Notice and Representations 25(d) and
32(d) of the Summary. Condition (q) of the Notice sets forth certain
supplemental requirements for securities loans involving UBS Foreign
Borrowers. Specifically, subparagraph 5 of Condition (q) describes the
limited form of indemnity that is to be provided by the UBS Foreign
Borrower to a Client Plan. For example, prior to a securities lending
transaction, the UBS Foreign Borrower must (a) agree to submit to the
jurisdiction of the United States; (b) agree to appoint an agent for
service of legal process; and (c) consent to service of process on the
Process Agent.
The Applicants note, however, that the language of Condition
(q)(5)(D) of the Notice and Representations 25(d) and 32(d) of the
Summary appears to have been added in error. These paragraphs state
that the applicable UBS Foreign Borrower ``agrees to be indemnified in
the United States for any transaction covered by this exemption.''
Because no UBS Borrower will be indemnified under this exemption, the
Applicants suggest that the language be clarified to state that the
``UBS Foreign Borrower agrees that enforcement by a Client Plan of the
indemnity provided by UBS New York will occur in the United States
courts.''
In response, the Department concurs with the clarification made by
the Applicants and has made the requested change.
6. Representation 11 of the Summary. The Applicants request that
the second sentence in the second paragraph of Representation 11 of the
Summary be modified by inserting the phrase ``will be the same as that
approved by the Client Plan fiduciary in the Primary Lending
Agreement.'' Therefore, the Department has revised the sentence to read
as follows:
Thus, for example, the form of Loan Agreement will be the same
as that approved by the Client Plan fiduciary in the Primary Lending
Agreement.
7. Representation 27 of the Summary. Representation 27 of the
Summary describes the contents of the monthly report that will be given
to the independent fiduciary of a Client Plan by UBS NY. Among other
things, the monthly report will enable the Client Plan fiduciary to
monitor securities lending activity, rates on loans to UBS Borrowers
compared with loans to other brokers and the level of collateral. The
Applicants wish to emphasize that while they cannot be required to
divulge, in the monthly report, confidential information regarding
securities loans made by outside lenders, they will disclose all of a
Client Plan's outstanding securities loans that are made to UBS
Borrowers. Therefore, the Applicants request that Representation 27 be
revised, in part, as follows:
In order to provide the means for monitoring lending activity,
rates on loans to UBS Borrowers compared with loans to other brokers
and the level of collateral on the loans, it is represented that the
monthly report will show, on a daily basis, the market value of all
of the Client Plan's outstanding securities loans to the UBS
Borrower and to other borrowers as compared to the total collateral
held for both categories of loans.
In response, the Department concurs with the Applicants'
clarification of the monthly report and has made the requested change.
For further information regarding the Applicants' comments or other
matters discussed herein, interested persons are encouraged to obtain
copies of the exemption application file (Exemption Application Nos. D-
10459 and D-10460) the Department is maintaining in this case. The
complete application file, as well as all supplemental submissions
received by the Department, are made available for public inspection in
the Public Documents Room of the Pension and Welfare Benefits
Administration, Room N-5638, U.S. Department of Labor, 200 Constitution
Avenue, NW, Washington, DC 20210.
Accordingly, after giving full consideration to the entire record,
including the written comment provided by the Applicants, the
Department has made the aforementioned changes to the Notice and has
decided to grant the exemption
[[Page 36963]]
subject to the modifications or clarifications described above.
For Further Information Contact: Ms. Jan D. Broady of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
Breland Investments, Inc. Profit Sharing Plan and Trust (the Plan)
Located in Phoenix, Arizona
[Prohibited Transaction Exemption 98-33; Exemption Application No: D-
10529]
Exemption
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 loan (the Loan) by the individually
directed account (the Account) in the Plan 3 of Dr. Albert
E. Breland (Dr. Breland), to Mesa Scholastic Enterprises, a
disqualified person with respect to the Plan, and (2) the personal
guarantee of the Loan by Dr. Breland, a disqualified person with
respect to the Plan, provided the following conditions are satisfied:
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\3\ Because Dr. Breland is the only participant in the Plan,
there is no jurisdiction under 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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(a) the terms of the Loan are at least as favorable to the Account
as those obtainable in an arm's length transaction with an unrelated
party;
(b) the amount of the Loan does not exceed 25% of the assets in the
Account;
(c) the Loan is secured by a first deed of trust on the commercial
real property, which has been appraised by a qualified independent
appraiser to have a fair market value not less than 150% of the
outstanding balance of the Loan throughout its duration;
The Department received no comments or requests for a hearing in
response to the Notice of Proposed Exemption (the Notice) published on
Friday, May 29, 1998 at 63 FR 29458. However, in the paragraph entitled
``Notice to Interested Persons'' contained in the Notice, the word
``Overland'' should be deleted and the word ``Breland'' should be
inserted in lieu thereof.
For a more complete statement of the summary of facts and
representations supporting the Department's decision to grant this
exemption, refer to the Notice.
For Further Information Contact: Mr. James Scott Frazier, telephone
(202) 219-8881. (This is not a toll-free number).
Karen J. Hartley Profit Sharing Plan (P/S Plan) and Karen J. Hartley
Money Purchase Pension Plan and Trust Agreement (M/P Plan,
collectively; the Plans) Located in Eugene, Oregon
[Prohibited Transaction Exemption 98-34; Exemption Application Nos. D-
10588 and D-10589]
Exemption
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 loan (the Loan) by the Plans to Karen J. Hartley, the
trustee and sole participant of the Plans and, a disqualified person
with respect to the Plans; 4 provided that the following
conditions will be met:
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\4\ Pursuant to CFR 2510.3-3(b) and (c), the Department has no
jurisdiction with respect to the Plans under 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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1. The Loan will be structured such that each Plan will lend up to
25% of its assets. However, the aggregate amount of the Loan will not
exceed $40,000 at any time;
2. The outstanding balance of the Loan will at no time exceed 25%
of the Plans' aggregate assets;
3. The Plans will bear no expenses with respect to the proposed
transaction;
4. The terms and conditions of the Loan will be at least as
favorable to the Plans as those obtainable in arm's-length transaction
with an unrelated party; and
5. The Loan will be adequately secured by collateral, which at all
times will be equal to 100% of the outstanding principal amount of the
Loan plus 6 months interest at the Loan's interest rate of 8.2%. In the
event the collateral amount falls below this required amount, this
exemption will no longer be available.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on May 18, 1998 at 63 FR
27332.
For Further Information Contact: Ekaterina A. Uzlyan of the
Department at (202) 219-8883. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions do not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 1st day of July 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 98-18010 Filed 7-7-98; 8:45 am]
BILLING CODE 4510-29-P