[Federal Register Volume 65, Number 181 (Monday, September 18, 2000)]
[Notices]
[Pages 56337-56344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23823]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2000-46; Exemption Application No. D-
10590, et al.]


Grant of Individual Exemptions; Bank of Oklahoma (the Bank)

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, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type proposed to the Secretary of 
Labor.

[[Page 56338]]

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.

Bank of Oklahoma (the Bank), Located in Tulsa, OK

[Prohibited Transaction Exemption 2000-46; Exemption Application No. D-
10590]

Exemption

Section I. Covered Transactions

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to 
the purchase or redemption of shares by an employee benefit plan (the 
Plan), in certain mutual funds that are either affiliated with the Bank 
(the Affiliated Funds) or are unaffiliated with the Bank (the Third 
Party Funds),\1\ in connection with the participation by the Plan in 
the Bank-sponsored Foundations Program (the Foundations Program).
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    \1\ The Affiliated Funds and the Third Party Funds are 
collectively referred to herein as the Funds.
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    In addition, the restrictions of section 406(b) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(E) and (F) of the Code, shall not apply 
to the provision, by the Bank, of asset allocation services to an 
independent fiduciary of a participating Plan (the Primary Independent 
Fiduciary) or to a participant (the Directing Independent Fiduciary) of 
a Plan that provides for participant investment direction (the 
Participant-Directed Plan), which may result in the selection of 
portfolios in the Foundations Program for the investment of Plan 
assets, by the Primary Independent Fiduciary or the Directing 
Independent Fiduciary, and the receipt of fees by the Bank and/or its 
affiliates.
    This exemption is subject to the conditions set forth below in 
Section II.

Section II. General Conditions

    (a) The participation by a Plan in the Foundations Program is 
approved by a Primary Independent Fiduciary or a Directing Independent 
Fiduciary, in the case of a Participant-Directed Plan, and, no Plan 
covering employees of the Bank or any of its affiliates is eligible to 
participate in the Foundations Program.
    (b) As to each Plan, the total fees that are paid to the Bank and 
its affiliates constitute no more than reasonable compensation for the 
services provided.
    (c) With the exception of distribution-related fees that are paid 
to the Bank pursuant to Rule 12b-1 (the Rule 12b-1 Fees) of the 
Investment Company Act of 1940 (the Investment Company Act) which are 
offset, no Plan pays a fee or commission by reason of the acquisition 
or redemption of shares in the Funds.
    (d) The terms of each purchase or redemption of shares in the Funds 
remain at least as favorable to an investing Plan as those obtainable 
in an arm's length transaction with an unrelated party.
    (e) The Bank provides written documentation to each Plan's Primary 
Independent Fiduciary or Directing Independent Fiduciary of its 
recommendations, as well as on the design and parameters with respect 
to an asset allocation model (the Asset Allocation Model) based upon 
objective criteria that are uniformly applied.
    (f) Any recommendation or evaluation made by the Bank to a Primary 
Independent Fiduciary or a Directing Independent Fiduciary is 
implemented only at the express direction of such fiduciary.
    (g) The Bank retains an independent financial analyst (the 
Independent Financial Analyst) to--
    (1) Review the investments of Plan assets in a Third Party Fund for 
purposes of satisfying Representation 13 of the notice of proposed 
exemption (65 FR 42248, 42255 and 42256, July 7, 2000);
    (2) Review determinations by the Bank to add a Third Party Fund or 
replace an Affiliated Fund with a Third Party Fund; and
    (3) Ensure that only one Fund fits an asset segment (the Asset 
Segment) such that there is no overlap between a Third Party Fund and 
an Affiliated Fund.
    Further, such Independent Financial Analyst may not derive more 
than 5 percent of its total annual revenues from the Bank and/or its 
affiliates.
    (h) The quarterly fee that is paid by a Plan to the Bank and its 
affiliates for asset allocation and related services (the Wrap Fee) 
rendered to such Plan under the Foundations Program is offset by--
    (1) All investment management fees (the Advisory Fees) that are 
paid to it and/or its affiliates by the Affiliated Funds;
    (2) All non-advisory fees, including custodial fees, Rule 12b-1 
Fees or subadministration fees (collectively, the Administrative Fees) 
that are paid to the Bank and/or its affiliates by the Affiliated 
Funds; and
    (3) All Administrative Fees which include, but are not limited to, 
Rule 12b-1 Fees and sub-transfer agency fees, that are paid to the Bank 
and/or its affiliates by the Third Party Funds, such that the sum of 
the offset and the net Wrap Fee will always equal the aggregate Wrap 
Fee, thereby making the Bank's selection of Affiliated Funds or Third 
Party Funds for the Asset Allocation Models a ``fee-neutral'' decision.
    (i) The Plan is automatically rebalanced on a quarterly basis 
(using net asset values of the affected Funds as of the close of 
business) on a pre-established date to the Asset Allocation Model 
previously prescribed by such fiduciary if authorized in writing by the 
Primary Independent Fiduciary, and if one or more Fund allocations 
deviates from the Asset Allocation Model prescribed by such fiduciary 
because--
    (1) At least one transaction required to rebalance the Plan among 
the Funds involves a purchase or redemption of securities valued at 
$100 or more; and
    (2) The net asset value of the Fund affected would be more than 5 
percent of the Plan's investment in such Fund.
    (j) The Bank may make adjustments to the composition of the Asset 
Allocation Model (the Model Adjustments) unilaterally only within 
certain authorized parameters approved by the Primary Independent 
Fiduciary, or upon the consent of the Primary Independent Fiduciary, if 
the Bank proposes to exceed the parameters.
    (1) If the Model Adjustment is made unilaterally pursuant to 
Section II(j) above, the Bank may only deviate from the Normal Position 
of a given Asset Allocation Model within a specified range, not to 
exceed 15 percent (above and below) the Normal Position under Section 
III(l), which is applied to the Asset Allocation Model's entire 
allocation.
    (2) With respect to a Model Adjustment requiring independent 
fiduciary consent, the Bank may not change the asset mix outside the 
limits authorized by the Primary Independent Fiduciary unless it 
provides the Primary Independent Fiduciary and the Directing 
Independent Fiduciary, upon the request of the Primary Independent 
Fiduciary, 30 days' advance written notice of the impending change.
    (k) The notice referred to above in Section II(j) includes a 
termination

[[Page 56339]]

advisory form (the Termination Advisory) which--
    (1) Advises the Primary Independent Fiduciary of the right to 
withdraw from the Foundations Program or, in the case of the Directing 
Independent Fiduciary, of the right to transfer to a different Asset 
Allocation Model without penalty; and
    (2) States that absent any affirmative action by the Primary 
Independent Fiduciary or the Directing Independent Fiduciary, the Plan 
will be reallocated within the revised Normal Positions for the Asset 
Allocation Model, effective as of a given date.
    (l) The Bank provides the Termination Advisory to the Primary 
Independent Fiduciary and, if applicable, the Directing Independent 
Fiduciary, at least annually; and provides the Termination Advisory in 
all cases whenever the Bank --
    (1) Makes a Model Adjustment where fiduciary consent is needed;
    (2) Adds a new Fund to an Allocation Model;
    (3) Removes an existing Fund within an Allocation Model; or
    (4) Increases its Wrap Fee.
    Under such circumstances, the notice and Termination Advisory are 
provided at least 30 days prior to the implementation of the change.\2\
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    \2\ For an annual mailing of the Termination Advisory or in the 
event the Bank makes a Model Adjustment that is outside of current 
parameters or a Fund is added or substituted, the Termination 
Advisory will include language similar to that contained in Section 
II(k)(1) and (2). In the event the Bank proposes an increase in its 
Wrap Fee, the Termination Advisory will also include language 
similar to that contained in Section II(k)(1). However, under such 
circumstances, Section II(k)(2) will be modified state that absent 
any affirmative action by the Primary Independent Fiduciary or the 
Directing Independent Fiduciary, the revised Wrap Fee will be 
effective as of a specified date.
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    (m) With respect to its participation in the Foundations Program, 
prior to purchasing shares in the Affiliated Funds and the Third Party 
Funds, each Primary Independent Fiduciary, and, if applicable, each 
Directing Independent Fiduciary, receives the following written or oral 
disclosures from the Bank:
    (1) A brochure describing the Foundations Program;
    (2) A Foundations Program Asset Allocation Account Application;
    (3) A Foundations Program Asset Allocation Account Purchase Order;
    (4) A Foundations Program Account Agreement (the Account Agreement) 
providing detailed information on the Foundations Program; the fee 
structure of the Foundations Program; procedures and limitations 
imposed on the Bank with respect to Model Adjustments; rebalancing of a 
participating Plan investor's account; and the Bank's affiliation or 
non-affiliation with the Funds, including a copy of the executed 
Account Agreement between the Plan and the Bank, to the Primary 
Independent Fiduciary rather than to the Directing Independent 
Fiduciary;
    (5) The Bank's Form ADV--Part II which contains a description of 
the Bank's affiliation, if any, with the sponsors, distributors, 
administrators, investment advisers, sub-advisers, custodians and 
transfer agents of each Affiliated Fund and Third Party Fund; and
    (6) Copies of the proposed and final exemptions with respect to the 
exemptive relief described herein. (In the case of a Participant-
Directed Plan, this information may be provided directly by the Bank to 
the Primary Independent Fiduciary for distribution to the Directing 
Independent Fiduciaries.)
    (n) Having acknowledged receipt of the documents described in 
paragraph (m) of Section II, the Primary Independent Fiduciary submits 
a completed Account Agreement to the Bank and represents in writing to 
the Bank that such fiduciary is--
    (1) Independent of the Bank and its affiliates;
    (2) Knowledgeable with respect to the Plan in administrative 
matters;
    (3) Able to make an informed decision concerning the Plan's 
participation in the Foundations Program; and
    (4) Knowledgeable with respect to funding matters related to the 
Plan.
    (o) In addition to the initial disclosures described above in 
paragraph (m) of this Section II, prior to investment in an Asset 
Allocation Model, the Primary Independent Fiduciary or, if applicable, 
the Directing Independent Fiduciary--
    (1) Receives a written analysis from the Bank based on the 
fiduciary's Investor Profile as well as a description of the Asset 
Allocation Model recommended by a Bank's investment counselor which 
includes a description of the actual fee structure and the actual basis 
points to be rebated to such Plan fiduciary;
    (2) Receives a prospectus for each Affiliated Fund and Third Party 
Fund in which the Plan may be invested and, upon such fiduciary's 
request, is provided a Statement of Additional Information which 
supplements the prospectus; and
    (3) Acknowledges receipt of the foregoing documents in writing to 
the Bank.
    (p) With respect to their ongoing participation in the Foundations 
Program, each Primary Independent Fiduciary and/or Directing 
Independent Fiduciary receives the following continuing disclosures 
from the Bank:
    (1) Copies of applicable prospectuses;
    (2) Written confirmations of each purchase or redemption of shares 
of an Affiliated Fund or a Third Party Fund, including transactions 
implemented as a result of a realignment of the Asset Allocation 
Model's investment mix or from the rebalancing of a Plan's investments 
in conformity with the selected Asset Allocation Model;
    (3) Telephone quotations of such Plan's balance (or if relevant, 
individual account balances of Directing Independent Fiduciaries) under 
the Foundations Program;
    (4) Periodic, but at least quarterly, account statements showing 
the Plan's value (or if relevant, individual account balances of 
Directing Independent Fiduciaries), a summary of purchase, sale and 
exchange activity and dividends received or reinvested and a summary of 
cumulative realized gain and/or loss;
    (5) Semiannual or annual reports that include financial statements 
for the Funds as well as a description of the fees paid to the Bank and 
its affiliates;
    (6) At least annually, a written or oral inquiry from the Bank to 
ascertain whether the information provided on the Investor Profile is 
still accurate and to determine if such information should be updated;
    (7) A Termination Advisory provided on an annual basis as well as 
at other times noted in paragraph (l) of this Section II; and
    (8) The Bank's investment advisory and other agreements with any 
Affiliated Fund as well as its distribution agreement pertaining to the 
Third Party Funds, upon request of the Primary Independent Fiduciary. 
(Communications received from the Funds (e.g., prospectuses, annual 
reports, quarterly reports, notices regarding changes in Fund managers, 
proxy mailings, etc.) will be distributed to the Primary Independent 
Fiduciary, who may elect to pass them through to the Directing 
Independent Fiduciaries.)
    (q) The Bank maintains, for a period of six years, the records 
necessary to enable the persons described in paragraph (r) of this 
Section II to determine whether the conditions of this 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 the Bank and/or 
its affiliates, the records are lost or destroyed prior to the end of 
the six year period; and

[[Page 56340]]

    (2) No party in interest other than the Bank shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required by paragraph (r) of this Section II below.
    (r)(1) Except as provided in section (r)(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 (q) of this 
Section II 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 Plan or any duly authorized 
representative of such fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (r)(2) None of the persons described above in paragraphs (r)(1)(B)-
(r)(1)(D) of this paragraph (r) are authorized to examine the trade 
secrets of the Bank or commercial or financial information which is 
privileged or confidential.

Section III. Definitions

    For purposes of this exemption:
    (a) The term ``Bank'' means the Bank of Oklahoma, N.A., a 
subsidiary of BOK Financial Corporation and any affiliate of the Bank, 
as defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of the Bank includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the Bank.
    (2) Any individual who is an officer, director or partner in the 
Bank or a person described in subparagraph (b)(1) of this Section III, 
and
    (3) Any corporation or partnership of which the Bank or an 
affiliate or person described in subparagraphs (b)(1) or (b)(2) of this 
Section III, is a 10 percent or more partner or owner.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    (e) The term ``Plan'' refers to an employee benefit plan which is 
eligible to participate under the Foundations Program. Such Plans are 
qualified under sections 401(a) and 501(a) of the Code and include 
Keogh plans; individual retirement accounts; simplified employee 
pension plans; Salary Reduction Simplified Employee Pensions (SARSEPs), 
provided that the SARSEP was established prior to January 1, 1996, the 
date as of which the Code provision authorizing such plans was 
repealed); and savings incentive match plans for employees; and, in the 
case of a Participant-Directed Plan, the individual account of a 
Directing Independent Fiduciary.
    (f) The term ``Directing Independent Fiduciary'' means, as to a 
participating Plan, a participant in a Participant-Directed Plan that 
is authorized to direct the investment of his or her account balance.
    (g) The ``Administrative Fees'' refer to custodial, Rule 12b-1 
Fees, and sub-administration fees that are paid to the Bank or its 
affiliates from or on behalf of the Affiliated Funds on account of the 
Bank's services to the Affiliated Funds, as well as Rule 12b-1 Fees, 
sub-transfer agency fees and other fees that may be paid to the Bank or 
its affiliates on account of the investment of participating Plans in 
the Third Party Funds.
    (h) The ``Advisory Fees'' refer to investment advisory fees that 
are paid by the Affiliated Funds to the Bank and its affiliates.
    (i) The term ``Affiliated Fund'' means a portfolio of an investment 
company registered under the Investment Company Act for which the Bank 
or an affiliate of the Bank acts as the investment adviser, and may 
also serve as custodian or sub-administrator.
    (j) The term ``Asset Segment'' refers to a subdivision of each 
asset class (the Asset Class) into which the Asset Allocation Model is 
divided (e.g., international equities is an Asset Segment under the 
Asset Class ``stocks''). Asset Segments are determined by the Bank with 
reference to recognized investment objectives and styles established by 
independent mutual fund analysts such as Morningstar, Inc. and Lipper 
Analytical Services, Inc.
    (k) The ``Investment Management Group'' refers to a committee 
comprised of the Bank's senior investment professionals.
    (l) The term ``Model Adjustment'' means an adjustment to the Normal 
Position of an Asset Allocation Model (i.e., a change in the Asset 
Allocation Model among the three Asset Classes, the division of the 
Asset Class into Asset Segments, and the identity of the Funds which 
represent the various Asset Segments).
    (m) The ``Normal Position'' refers to the initial allocation of 
each Asset Allocation Model among the various Asset Classes, Asset 
Segments and Funds.
    (n) The ``Offset Fees'' refer to the Advisory Fees and 
Administrative Fees that are paid by, or on behalf of, the Funds to the 
Bank and/or its affiliates and which are offset against the Wrap Fee.
    (o) The term ``Participant-Directed Plan'' refers to a qualified 
Plan under which participants direct the investments of their 
individual accounts.
    (p) The term ``Primary Independent Fiduciary'' refers to a plan 
fiduciary within the meaning of section 3(21)(A) of the Act who has (1) 
investment discretion and authority over the Plan's assets and (2) is 
not an affiliate of the Bank. Typically, the Primary Independent 
Fiduciary will be the plan administrator, the employer which sponsors 
the Plan, an investment committee appointed under the Plan document or 
an IRA account holder.
    (q) The term ``Termination Advisory'' refers to the notice advising 
the Primary Independent Fiduciary or the Directing Independent 
Fiduciary of the right to withdraw from the Foundations Program without 
penalty. The Termination Advisory, which will contain instructions on 
its use, will be provided to such participants on an annual basis, or 
whenever the Bank makes a Model Adjustment that is outside of a current 
Allocation Model, in the event a new Fund is added to an Allocation 
Model or an existing Fund is removed from an Allocation Model, or the 
Bank's Wrap Fee is increased. Depending on the circumstances 
precipitating its distribution, the Termination Advisory will include a 
provision advising the Primary Independent Fiduciary or the Directing 
Independent Fiduciary that absent any affirmative action by the Primary 
Independent Fiduciary or the Directing Independent Fiduciary, the 
authorization of the Plan's participation in the Foundations Program 
will continue, or the participating Plan will be reallocated in 
accordance with the revised Normal Position for the Asset Allocation 
Model in which the Plan's assets are invested, or the Bank's Wrap

[[Page 56341]]

Fee will be increased. The Bank will provide the Termination Advisory 
to the Primary Independent Fiduciary and/or the Directing Independent 
Fiduciary at least 30 days prior to the implementation of the proposed 
change.
    (r) A ``Third Party Fund'' is a portfolio of an investment company 
that is registered under the Investment Company Act for which neither 
the Bank nor any affiliate of the Bank acts as investment adviser, 
custodian and/or sub-administrator.
    (s) The term ``Wrap Fee'' refers to the Plan or account-level fee 
the Bank, BOSC, Inc. (BOSC) and/or their affiliates charge each Plan 
for the asset allocation, custodial and related services under the 
Foundations Program.
    (t) The term ``Independent Financial Analyst'' means an independent 
third party which has entered into a written contract with the Bank to 
(1) review the investment of Plan assets in a Third Party Fund, (2) 
review the Funds each time the Bank determines to add a Third Party 
Fund or replace an Affiliated Fund with a Third Party Fund, and (3) 
determine that only one Fund fits an Asset Segment such that there is 
no overlap between a Third Party Fund and an Affiliated Fund. The 
Independent Financial Analyst may not derive more than 5 percent of its 
total annual revenues from the Bank or its affiliates, including its 
fee for serving as the Independent Financial Analyst.
    As for minimum credentials, the Independent Financial Analyst will 
be a Chartered Financial Analyst and will be employed by a firm which 
has at least a regional presence in the investment products and 
services industry. In addition, the individual assigned the duties of 
the Independent Financial Analyst must alone, or with his or her 
employer, have a certain minimum number of years experience in the 
investment products and services industry and must not be affiliated 
with the Bank, BOSC or BISYS Fund Services, Inc. Should the Bank 
replace the Independent Financial Analyst, that entity must meet the 
same requirements applicable to the current Independent Financial 
Analyst. In addition, the Bank will be required to provide the 
Department with advance written notification of the change in 
Independent Financial Analysts and the qualifications of the successor. 
Unless the Department objects to the change, the Foundations Program 
will operate with the new Independent Financial Analyst.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the proposed exemption published on July 7, 2000 at 65 FR 42248.

Written Comments

    The Department received two written comments with respect to the 
proposed exemption and no requests for a public hearing. The first 
comment was submitted by the Bank. The second comment was submitted by 
the Securities Industry Association (the SIA). Following is a 
discussion of each comment and the responses made by either the 
Department or the Bank.

The Bank's Comment

    In its comment, the Bank requested modification of Section II(g)(1) 
of the proposed exemption in order to track the role of the Independent 
Financial Analyst to Representation 13 of the Summary of Facts and 
Representations. Section II(g)(1) of the proposed exemption states that 
the Independent Financial Analyst will review the investments of Plan 
assets in a Third Party Fund for purposes of ``performance and 
suitability.'' However, the Bank suggested that Section II(g)(1) be 
revised to read as follows:

    (1) Review the investments of Plan assets in a Third Party Fund 
for purposes of satisfying Representation 13 of the notice of 
proposed exemption (65 FR 42248, 42255 and 42256, July 7, 2000);

    In response to the Bank's comment, the Department has made the 
requested change to the operative language of the proposed exemption.
The SIA's Comment
    In its comment, the SIA requested that the Department reconsider a 
number of conditions contained in the notice of proposed exemption. In 
response to the SIA's comment letter, the Bank indicated that it was 
not interested in any of the recommendations expressed therein. 
Accordingly, the Bank urged the Department to grant the requested 
exemption as proposed, subject to the modification discussed above.
    For further information regarding the comments and other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10590) 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 comment letters, the Department has decided to grant the 
exemption subject to the modification described above.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Goldman, Sachs & Co., Located in New York, New York

[Prohibited Transaction Exemption 2000-47; Exemption Application No. D-
10758]

Exemption

Section I--Transactions

    A. The restrictions of section 406(a)(1) (A) through (D) 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 (D) of the Code, shall 
not apply, effective April 15, 1999, to any purchase or sale of 
securities between certain affiliates of Goldman, Sachs & Co. (Goldman) 
which are foreign broker-dealers or banks (the Foreign Affiliates, as 
defined below) and employee benefit plans (the Plans) with respect to 
which the Foreign Affiliates are parties in interest, including options 
written by a Plan, Goldman, or a Foreign Affiliate, provided that the 
following conditions, and the General Conditions of Section II, are 
satisfied:
    (1) The Foreign Affiliate customarily purchases and sells 
securities for its own account in the ordinary course of its business 
as a broker-dealer or bank;
    (2) The terms of any transaction are at least as favorable to the 
Plan as those the Plan could obtain in a comparable arm's length 
transaction with an unrelated party; and
    (3) Neither the Foreign Affiliate nor an affiliate thereof 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, and the Foreign Affiliate is a party in interest or 
disqualified person with respect to the Plan assets involved in the 
transaction solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections. For purposes of this paragraph, the Foreign 
Affiliate shall not be deemed to be a fiduciary with respect to a Plan 
solely by reason of providing securities custodial services for the 
Plan.
    B. The restrictions of sections 406(a)(1) (A) through (D) and 
406(b)(2)

[[Page 56342]]

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 (D) of 
the Code, shall not apply, effective April 15, 1999, to any extension 
of credit to the Plans by the Foreign Affiliates to permit the 
settlement of securities transactions, regardless of whether they are 
effected on an agency or a principal basis, or in connection with the 
writing of options contracts, provided that the following conditions, 
and the General Conditions of Section II, are satisfied:
    (1) The Foreign Affiliate is not a fiduciary with respect to the 
Plan assets involved in the transaction, unless no interest or other 
consideration is received by the Foreign Affiliate or an affiliate 
thereof, in connection with such extension of credit; and
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934 (the 1934 Act) and any rules or regulations 
thereunder, if the 1934 Act, rules, or regulations were applicable.
    C. The restrictions of section 406(a)(1) (A) through (D) 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 (D) of the Code, 
shall not apply, effective April 15, 1999, to the lending of securities 
to the Foreign Affiliates by the Plans, provided that the following 
conditions, and the General Conditions of Section II, are satisfied:
    (1) Neither the Foreign Affiliate nor an affiliate thereof 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;
    (2) The Plan receives from the Foreign Affiliate (by physical 
delivery, by book entry in a securities depository, wire transfer, or 
similar means) by the close of business on the day the loaned 
securities are delivered to the Foreign Affiliate, collateral 
consisting of cash, securities issued or guaranteed by the U.S. 
Government or its agencies or instrumentalities, irrevocable U.S. bank 
letters of credit issued by persons other than the Foreign Affiliate or 
an affiliate of the Foreign Affiliate, or any combination thereof. All 
collateral shall be in U.S. dollars, or dollar-denominated securities 
or bank letters of credit, and shall be held in the United States;
    (3) The collateral has, as of the close of business on the 
preceding business day, a market value equal to at least 100 percent of 
the then market value of the loaned securities (or, in the case of 
letters of credit, a stated amount equal to same);
    (4) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains terms at 
least as favorable to the Plan as those the Plan could obtain in a 
comparable arm's length transaction with an unrelated party;
    (5) In return for lending securities, the Plan either (a) receives 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than what the Plan would 
pay in a comparable arm's length transaction with an unrelated party;
    (6) The Plan receives at least the equivalent of all distributions 
on the borrowed securities made during the term of the loan, including, 
but not limited to, cash dividends, interest payments, shares of stock 
as a result of stock splits, and rights to purchase additional 
securities, that the Plan would have received (net of applicable tax 
withholdings) \3\ had it remained the record owner of such securities;
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    \3\ The Department notes the applicant's representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan may be subject to foreign tax withholdings and that the 
Foreign Affiliate will always put the Plan back in at least as good 
a position as it would have been in had it not loaned the 
securities.
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    (7) If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate delivers additional collateral, by the close of 
business on the following business day, to bring the level of the 
collateral back to at least 100 percent. However, if the market value 
of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent;
    (8) Before entering into a Loan Agreement, the Foreign Affiliate 
furnishes to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change;
    (9) The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
shall 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 Plan within (a) the customary delivery period for such 
securities, (b) five business days, or (c) the time negotiated for such 
delivery by the Plan and the Foreign Affiliate, whichever is least, or, 
alternatively, such period as permitted by Prohibited Transaction Class 
Exemption (PTE) 
81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754, May 19, 
1987), as it may be amended or superseded; \4\
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    \4\ PTE 81-6 provides an exemption under certain conditions from 
section 406(a)(1)(A) through (D) of the Act and the corresponding 
provisions of section 4975(c) of the Code for the lending of 
securities that are assets of an employee benefit plan to a U.S. 
broker-dealer registered under the 1934 Act (or exempted from 
registration under the 1934 Act as a dealer in exempt Government 
securities, as defined therein) or to a U.S. bank, that is a party 
in interest with respect to such plan.
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    (10) In the event that the loan is terminated and the Foreign 
Affiliate fails to return the borrowed securities, or the equivalent 
thereof, within the time described in paragraph 9, the Plan may 
purchase securities identical to the borrowed securities (or their 
equivalent as described above) and may apply the collateral to the 
payment of the purchase price, any other obligations of the Foreign 
Affiliate under the Loan Agreement, and any expenses associated with 
the sale and/or purchase. The Foreign Affiliate is obligated to pay, 
under the terms of the Loan Agreement, and does pay, to the Plan the 
amount of any remaining obligations and expenses not covered by the 
collateral, plus interest at a reasonable rate. Notwithstanding the 
foregoing, the Foreign Affiliate may, in the event it fails to return 
borrowed securities as described above, replace non-cash collateral 
with an amount of cash not less than the then current market value of 
the collateral, provided that such replacement is approved by the 
independent Plan fiduciary; and

[[Page 56343]]

    (11) The independent Plan fiduciary maintains the situs of the Loan 
Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404(b)-1. However, in the event that the independent Plan 
fiduciary does not maintain the situs of the Loan Agreement in 
accordance with the indicia of ownership requirements of Section 404(b) 
of the Act, the Foreign Affiliate shall not be subject to the civil 
penalty which may be assessed under section 502(i) of the Act, or the 
taxes imposed by section 4975(a) and (b) of the Code.
    If the Foreign Affiliate fails to comply with any condition of the 
exemption in the course of engaging in a securities lending 
transaction, the Plan fiduciary who caused the Plan to engage in such 
transaction shall not be deemed to have caused the Plan to engage in a 
transaction prohibited by section 406(a)(1) (A) through (D) of the Act 
solely by reason of the Foreign Affiliate's failure to comply with the 
conditions of the exemption.

Section II--General Conditions

    A. The Foreign Affiliate is a registered broker-dealer or bank 
subject to regulation by a governmental agency, as described in Section 
III.B, and is in compliance with all applicable rules and regulations 
thereof in connection with any transactions covered by this exemption;
    B. The Foreign Affiliate, in connection with any transactions 
covered by this exemption, is in compliance with the requirements of 
Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and 
Exchange Commission (SEC) interpretations thereof, providing for 
foreign affiliates a limited exemption from U.S. broker-dealer 
registration requirements;
    C. Prior to any transaction, the Foreign Affiliate enters into a 
written agreement with the Plan in which the Foreign Affiliate consents 
to the jurisdiction of the courts of the United States for any civil 
action or proceeding brought in respect of the subject transactions;
    D. The Foreign Affiliate maintains, or causes to be maintained, 
within the United States for a period of six years from the date of any 
transaction such records as are necessary to enable the persons 
described in paragraph E. to determine whether the conditions of the 
exemption have been met, except that--
    (1) a party in interest with respect to a Plan, other than the 
Foreign Affiliate, shall not be subject to a civil penalty under 
section 502(i) of the Act or the taxes imposed by section 4975 (a) and 
(b) of the Code, if such records are not maintained, or not available 
for examination, as required by paragraph E; and
    (2) a prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the Foreign Affiliate's control, such 
records are lost or destroyed prior to the end of the six year period; 
and
    E. Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Foreign Affiliate makes the records 
referred to in paragraph D. unconditionally available during normal 
business hours at their customary location to the following persons or 
a duly authorized representative thereof: (1) the Department, the 
Internal Revenue Service, or the SEC; (2) any fiduciary of a Plan; (3) 
any contributing employer to a Plan; (4) any employee organization any 
of whose members are covered by a Plan; and (5) any participant or 
beneficiary of a Plan. However, none of the persons described in (2) 
through (5) of this subsection are authorized to examine the trade 
secrets of the Foreign Affiliate or commercial or financial information 
which is privileged or confidential.

Section III--Definitions

    A. The term ``affiliate'' of another person shall include: (1) any 
person directly or indirectly, through one or more intermediaries, 
controlling, controlled by, or under common control with such other 
person; (2) any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; and (3) any 
corporation or partnership of which such other person is an officer, 
director or partner. For purposes of this definition, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual;
    B. The term ``Foreign Affiliate'' shall mean an affiliate of 
Goldman, Sachs & Co. that is subject to regulation as a broker-dealer 
or bank by (1) the Ontario Securities Commission and the Investment 
Dealers Association in Canada; (2) the Securities and Futures Authority 
in the United Kingdom; (3) the Deutsche Bundesbank and the Federal 
Banking Supervisory Authority, i.e., der Bundesaufsichtsamt fuer das 
Kreditwesen (the BAK) in Germany; (4) the Ministry of Finance and the 
Tokyo Stock Exchange in Japan; (5) the Australian Securities & 
Investments Commission (the ASIC) in Australia; or (6) the Swiss 
Federal Banking Commission in Switzerland.
    C. The term ``security'' shall include equities, fixed income 
securities, options on equity and on fixed income securities, 
government obligations, and any other instrument that constitutes a 
security under U.S. securities laws. The term ``security'' does not 
include swap agreements or other notional principal contracts.

Effective Date: This exemption is effective as of April 15, 1999.
    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 June 13, 2000 at 65 FR 
37175.

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption (the Notice). The comment was submitted by 
the applicant. The applicant requested certain clarifying modifications 
and additions to the proposed operative language and to the Summary of 
Facts and Representations (the Summary) contained in the Notice (see 65 
FR 37175). These modifications and additions, discussed below, are 
consistent with other recent similar exemptions granted by the 
Department.\5\
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    \5\ See e.g., Prohibited Transaction Exemption (PTE) 97-08 (62 
FR 4811, January 31, 1997) for Morgan Stanley & Co.; PTE 97-57 (62 
FR 56203, October 29, 1997) for NatWest Securities Corp.; PTE 98-62 
(63 FR 71307, December 24, 1998) for Barclays Bank PLC; PTE 99-4 (64 
FR 4127, January 27, 1999) for Salomon Smith Barney Inc.; and PTE 
99-45 (64 FR 61138, November 9, 1999) for Donaldson, Lufkin & 
Jenrette Securities Corporation.
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    1. First, the applicant requested that the following footnote be 
added to the end of the first paragraph under the heading ``Proposed 
Exemption'' (65 FR at 37176, column 1):

    For purposes of this proposed exemption, reference to provisions 
of Title I of the Act, unless otherwise specified, refer also to the 
corresponding provisions of the Code.

    2. Second, the applicant requested that, because the settlement 
period for securities transactions in the various jurisdictions covered 
by the exemption may be more than three days, the first sentence in 
Item 7 of the Summary (65 FR 37180, center column) be revised to read 
as follows:

    Goldman represents that a normal part of the execution of 
securities transactions by broker-dealers on behalf of clients, 
including employee benefit plans, is the extension of credit to 
clients so as to permit the settlement of transactions in the 
customary [delete ``three-day''] settlement period.

    3. Finally, the applicant requested that Footnote 6 of the Summary 
(65 FR

[[Page 56344]]

at 37180, center column) be revised by adding the following italicized 
language:

    Goldman represents that currently all such requirements under 
Rule 15a-6 relating to record-keeping of principal transactions 
would be applicable [delete ``to''] in respect of any Foreign 
Affiliate in a principal transaction that would be covered by this 
proposed exemption.

The applicant noted that the revisions, above, are consistent with the 
language of PTE 99-4 (64 FR 4127, January 27, 1999) for Salomon Smith 
Barney Inc., in Footnote 4 of the notice of proposed exemption relating 
thereto (see 63 FR 53703, 53707).
    The Department acknowledges the applicant's requested modifications 
to the language of the Notice and concurs in these changes. 
Accordingly, based upon the information contained in the entire record, 
the Department has determined to grant the proposed exemption as 
modified herein.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) 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, D.C., this 11th day of September, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 00-23823 Filed 9-15-00; 8:45 am]
BILLING CODE 4510-29-P