Prohibited Transaction Exemption 2003-15; [Exemption Application
No. D-11111, 11112, and 11113] et al. Grant of Individual Exemptions;
Dupont Capital Management Corporation, (DCMC) [06/24/2003]
Volume 68, Number 121, Page 37519-37525
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Prohibited Transaction Exemption 2003-15; [Exemption Application
No. D-11111, 11112, and 11113] et al. Grant of Individual Exemptions;
Dupont Capital Management Corporation, (DCMC)
AGENCY: Employee Benefits Security 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
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.
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 exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
DuPont Capital Management Corporation, (DCMC) Located in Wilmington, DE
[Prohibited Transaction Exemption 2003-15;
Exemption Application Nos. D-11111, 11112, and 11113]
Exemption
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975(a) and (b) of the Code,
by reason of section 4975(c)(1)(A) through (D) of the Code, shall not
apply to the past extension of credit from the DuPont Pension and
[[Page 37520]]
Retirement Plan, the Pioneer Hi-Bred International, Inc. Retirement
Plan, and the Protein Technologies International Retirement Plan
(collectively, the Plans) \1\ to the Dow Chemical Company (Dow), a
party in interest with respect to the Plans, as a result of the holding
by the Plans of certain corporate debt securities (the Bonds) issued by
Dow, for the period from October 25, 2000 until July 10, 2001; provided
the following conditions were satisfied:
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\1\ Because the Plans are funded through the same trust and each
has an undivided interest in the assets of such trust, this
exemption treats the purchase of the Bonds by the Plans as a single
transaction and information concerning such purchase is referred to
on an aggregate basis.
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(a) The purchase of the Bonds by the Plans was a one-time
transaction for cash;
(b) The Plans paid no more than the current fair market value for
the Bonds at the time of the transaction, as determined by a reputable,
independent, third party market source;
(c) The Bonds were sold on July 10, 2001 for $2,101,900 at a profit
of $126,580 for the Plans;
(d) The purchase of the Bonds was not part of an agreement,
arrangement or understanding designed to benefit Dow or any other party
in interest with respect to the Plans; and
(e) The transaction represented less than .02% of each Plan's total
assets.
Effective Date of Exemption
The exemption is effective for the period from October 25, 2000
(the date of the acquisition of the Bonds by the Plans) until July 10,
2001 (the date the Bonds were sold).
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 January 22, 2003, at 68
FR 3047.
Written Comments: The applicant (i.e., DCMC) submitted a written
comment with respect to the notice of proposed exemption (the
Proposal). The comment is summarized below.
The applicant noted that in the operative language section of the
Proposal, paragraph (c), it was erroneously indicated that the Bonds
were sold for $1,975,320 (rather than for $2,101,900, as correctly
stated in Item 5 of the Summary of Facts and Representations in the
Proposal). Therefore, the Department has modified the language in
paragraph (c) of the exemption to state that the Bonds were sold for
$2,101,900.
The Department also received over one hundred telephone calls from
interested persons concerning the Proposal. In addition, the Department
received seven written inquiries from interested persons. All of the
telephone calls and written inquiries requested additional information
regarding the transactions and their possible affect on benefits
payable to the appropriate Plan participants. The Department responded
to each inquiry by telephone and attempted to address the concerns that
were raised. None of the additional comments made to the Department
offered any suggestions for changes to the Proposal.
No other comments were received by the Department. Accordingly, the
Department has determined to grant the exemption, as clarified above.
FOR FURTHER INFORMATION CONTACT: Brian Buyniski of the Department at
(202) 693-8545. (This is not a toll-free number).
DuPont Capital Management Corporation, (DCMC) Located in Wilmington, DE
[Prohibited Transaction Exemption 2003-16;
Exemption Application Nos. D-11114, 11115, 11116, 11117, 11118]
Exemption
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975(a) and (b) of the Code,
by reason of section 4975(c)(1)(A) through (D) of the Code, shall not
apply to the past extension of credit from the DuPont Pension and
Retirement Plan, the DuPont Dow Elastomers Pension and Retirement Plan,
the Pioneer Hi-Bred International, Inc. Retirement Plan, the Protein
Technologies International Retirement Plan, and the DuPont Savings and
Investment Plan (collectively, the Plans) to ConAgra Foods, Inc.
(ConAgra), a party in interest with respect to the Plans, as a result
of the holding by the Plans of certain corporate debt securities (the
Bonds) issued by ConAgra, for the period from September 5, 2001 until
October 17, 2001; provided the following conditions were satisfied:
(a) The purchase of the Bonds by the Plans was a one-time
transaction for cash;
(b) The Plans paid no more than the current fair market value for
the Bonds at the time of the transaction, as determined by reputable,
independent, third party market sources;
(c) The Bonds were sold on October 17, 2001 for $4,234,531 at a
profit of $185,638 for the Plans;
(d) The purchase of the Bonds was not part of an agreement,
arrangement or understanding designed to benefit ConAgra or any other
party in interest with respect to the Plans; and
(e) The transaction represented less than 1% of each Plan's total
assets.
Effective Date of Exemption
The exemption is effective for the period from September 5, 2001
(the date of the acquisition of the Bonds by the Plans) until October
17, 2001 (the date the Bonds were sold).
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 January 22, 2003, at 68
FR 3048.
Written Comments: The applicant (i.e., DCMC) submitted written
comments with respect to the notice of the proposed exemption (the
Proposal). The comments are summarized below.
The applicant states that the DuPont Dow Elastomers Pension and
Retirement Plan was not included in the list of ``Plans'' in the
Proposal.
Based on this comment, the Department has revised the appropriate
language in the Proposal to include the DuPont Dow Elastomers Pension
and Retirement Plan.
In addition, the applicant states that the information concerning
the plan sponsor of, and number of participants covered under, the
DuPont Dow Elastomers Pension and Retirement Plan was not included in
Item 2 of the Summary of Facts and Representations contained in the
Proposal (the Summary).
The applicant also noted that footnote 12 in the Proposal indicates
that ``the Plans are funded through the same trust'' and should have
indicated that the Dupont Savings and Investment Plan is funded through
a separate trust. The Department acknowledges the applicant's
clarifications to the information contained in the Summary.
The Department received seven written inquiries and over one
hundred telephone calls concerning the Proposal from interested
persons. All of the telephone calls and written inquiries requested
additional information regarding the transactions and their possible
affect on benefits payable to the appropriate Plan participants. The
Department responded to each inquiry by telephone and attempted to
address the concerns that were raised. None of the additional comments
made to the Department offered specific suggestions for changes to the
Proposal.
No other comments were received by the Department. Accordingly, the
Department has determined to grant the exemption, as modified herein.
FOR FURTHER INFORMATION CONTACT: Brian Buyniski of the Department at
[[Page 37521]]
(202) 693-8545. (This is not a toll-free number).
DuPont Capital Management Corporation, (DCMC) Located in Wilmington, DE
[Prohibited Transaction Exemption 2003-17;
Exemption Application Nos. D-11119 and 11120]
Exemption
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975(a) and (b) of the Code,
by reason of section 4975(c)(1)(A) through (D) of the Code, shall not
apply to the past extension of credit from the CONSOL Inc. Employee
Retirement Plan and the CONSOL Inc. Investment Plan for Salaried Plans
(collectively, the Plans)\2\ to Conoco Inc. (Conoco), a party in
interest with respect to the Plans, as a result of the holding by the
Plans of certain corporate debt securities (the Bonds) issued by
Conoco, for the period from December 29, 1999 through August 16, 2001;
provided the following conditions were satisfied:
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\2\ Because the Plans are funded through the same trust and each
has an undivided interest in the assets of such trust, this
exemption treats the purchase of the Bonds by the Plans as a single
transaction and information concerning such purchase is referred to
on an aggregate basis.
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(a) The purchase of the Bonds by the Plans was a one-time
transaction for cash;
(b) The Plans paid no more than the current fair market value for
the Bonds at the time of the transaction, as determined by reputable,
independent, third party market sources;
(c) The Bonds were sold on August 16, 2001 for $816,641 at a profit
of $61,858 for the Plans;
(d) The purchase of the Bonds was not part of an agreement,
arrangement or understanding designed to benefit Conoco or any other
party in interest with respect to the Plans; and
(e) The transaction represented less than 1% of each Plan's total
assets.
Effective Date of Exemption
The exemption is effective for the period from December 29, 1999
(the date of the acquisition of the Bonds by the Plans) until August
16, 2001 (the date the Bonds were sold).
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 January 22, 2003, at 68
FR 3050.
Written Comments: The applicant (i.e., DCMC) submitted written
comments with respect to the notice of the proposed exemption (the
Proposal). The comments are summarized below.
First, the applicant states that in Item 1 of the Summary of Facts
and Representations (the Summary), a reference was made to the DuPont
Pension Trust Fund (the DuPont Trust). In this regard, the applicant
notes that CONSOL, Inc., (CONSOL) was a member of a controlled group of
corporations that were subsidiaries of the E.I. duPont de Nemours and
Company (the DuPont Group) prior to November 1998. However, after such
date, CONSOL was no longer a member of the DuPont Group. Therefore, the
applicant wishes to clarify that the assets of the Plans are no longer
held in the DuPont Trust. In addition, the applicant notes that DCMC's
investment management services to employee benefit plans that are
sponsored by corporations that are part of the DuPont Group is not
relevant to CONSOL and the subject transactions described in the
proposal.
Second, the applicant notes that footnote 14 in the Summary,
reference is made to PTE 2001-05, 66 FR 7789 (January 25, 2001). The
information therein states that PTE 2001-05 was not effective at the
time of the subject transactions. The applicant represents that if PTE
2001-05 had been in effect at the time of the subject transactions the
exemption would not have provided relief. In this regard, the applicant
notes that PTE 2001-05 only provides relief for prohibited transactions
where the counterparty's party in interest status results solely from
being a service provider to the Plan. In the present case, the
counterparty's status as a party in interest results from an ownership
affiliation with an employer whose employees are covered by the Plan.
The Department acknowledges all of the applicant's comments and
clarifications to the information contained in the Summary.
Finally, the Department also received seven written inquiries and
over one hundred telephone calls from interested persons concerning the
Proposal. All of the telephone calls and written inquiries requested
additional information regarding the transactions and their possible
affect on benefits payable to the appropriate Plan participants. The
Department responded to each inquiry by telephone and attempted to
address the concerns that were raised. None of the additional comments
made to the Department offered any specific suggestions for changes to
the Proposal.
No other comments were received by the Department. Accordingly, the
Department has determined to grant the exemption, as clarified herein.
FOR FURTHER INFORMATION CONTACT: Brian Buyniski of the Department at
(202) 693-8545. (This is not a toll-free number).
Skandinaviska Enskilda Banken AB (SEB) Located in Stockholm, Sweden
[Prohibited Transaction Exemption 2003-18; Exemption Application No.
D-11133]
Exemption
Section I. Covered Transactions
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,\3\
shall not apply, effective October 23, 2002, to: (1) the lending of
securities that are assets of a plan (the Plan) to SEB's head office in
Stockholm (the Borrower or the Applicant) in accordance with the
conditions set forth below(the foregoing being Part One of this
exemption); and (2) the lending of securities, under certain exclusive
borrowing arrangements, to the Borrower by Plans, including commingled
investment funds holding assets of such Plans with respect to which SEB
or any of its affiliates is a party in interest; and (3) the receipt of
compensation by SEB or any of its affiliates in connection with these
exclusive borrowing transactions (the foregoing being Part Two of this
exemption).
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\3\ For the purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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This exemption is subject to the conditions contained below in
Sections II, III, and IV.
Section II. Conditions Applicable to Part One of the Exemption--
Securities Lending Between Plans and the Borrower
(a) Neither the Borrower nor any of its affiliates shall have
discretionary authority or control with respect to the investment of
Plan assets involved in the transaction, or renders investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to such
assets.
(b) Each Plan receives from the Borrower, either by physical
delivery or by book entry in a securities depository located in the
United States, by the close of business on the day on which the
securities lent are delivered to the Borrower, collateral consisting of
U.S. currency, securities issued or guaranteed by the United States
[[Page 37522]]
Government or its agencies or instrumentalities, or irrevocable United
States bank letters of credit issued by persons other than the Borrower
(or any of its affiliates), or any combination thereof, having, as of
the close of business on the preceding business day, a market value
(or, in the case of letters of credit, a stated amount) equal to not
less than 100 percent of the then market value of the securities lent.
The collateral referred to in this exemption, shall in all cases, be in
U.S. dollars or dollar-denominated securities or United States bank
letters of credit and must be held in the United States.
(c) Each 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 an arm's length transaction with an unrelated party.
(d) In return for lending securities, each 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. In the
latter case, the Plan may pay a loan rebate or similar fee to the
Borrower, if such fee is not greater than the Plan would pay an
unrelated party in a comparable arm's length transaction with an
unrelated party.
(e) Each Plan receives at least the equivalent of all distributions
made to holders of the borrowed securities during the term of the loan,
including, but not limited to, cash dividends, 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 tax
withholdings)\4\ had it remained the record owner of such securities.
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\4\ The Department notes that the Applicants representation that
dividends and other distributions on foreign securities payable to a
lending Plan may be subject to foreign tax withholdings and that the
Borrower will always put the Plan in at least as good a position as
it would have been in had it not loaned the securities.
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(f) If the market value of the collateral on the close of trading
on a business day falls below 100 percent of the market value of the
borrowed securities at the close of trading on that day, the Borrower
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 of the market value of all the borrowed securities as
of such preceding day. Notwithstanding the foregoing, part of the
collateral may be returned to the Borrower if the market value of the
collateral exceeds 100 percent of the market value of the borrowed
securities, as long as the market value of the remaining collateral
equals at least 100 percent of the market value of the borrowed
securities.
(g) Prior to entering into a Loan Agreement, the Borrower furnishes
to the independent fiduciary for the Plan who is making decisions on
behalf of the Plan with respect to the lending of securities: (1) the
most recently available audited and unaudited statements of its
financial condition; (2) the most recent available unaudited statement
of the Borrower's financial condition; and (3) a representation by the
Borrower that, as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished financial statement that has not been
disclosed to the Plan fiduciary.
Such representation may be made by the Borrowers' agreeing that
each loan shall constitute a representation by the Borrower that there
has been no material adverse change in its financial condition since
the date of the most recently furnished statements of financial
condition.
(h) Each Loan Agreement and any securities loan outstanding may be
terminated by the applicable Plan at any time, whereupon the Borrower
delivers 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 (1)
the customary delivery period for such securities; (2) five business
days; or (3) the time negotiated for such delivery by the Plan and the
Borrower, whichever is lesser, or, alternatively such period as
permitted by Prohibited Transaction Class Exemption (PTE) 81-6 (43 FR
7527, January 23, 1981), as it may be amended or superseded.\5\
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\5\ PTE 81-6, as amended at 52 FR 18754, May 19, 1987, provides
an exemption under conditions from section 406(a)(1)(A), through (D)
of the Act and the corresponding provisions of section 4975(c) of
the Code for the lending of securities that are assets of an
employee benefit plan to certain broker-dealers or banks which are
parties in interest.
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(i) In the event that a loan is terminated and the Borrower fails
to return the borrowed securities or the equivalent thereof within the
time described in paragraph (h) above, then 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 Borrower under the Loan
Agreement, and any expenses associated with any such sale and/or
purchase. The Borrower indemnifies the Plan with respect to the
difference, if any, between the replacement cost of the borrowed
securities and the market value of the collateral on the date the loan
is declared in default, together with expenses not covered by the
collateral plus applicable interest at a reasonable rate.
Notwithstanding the foregoing, the Borrower, may, in the event it fails
to return borrowed securities ad 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.
(j) Each Plan maintains the situs of any 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, the Borrower shall not be subject to the civil
penalty, which may be assessed pursuant to section 502(i) of the Act,
or to the taxes imposed by section 4975(a) and (b) of the Code, if the
Plan fails to comply with the requirements of 29 CFR 2550.404(b)-1.
If the Borrower fails to comply with any condition of this
exemption in the course of engaging in a securities lending
transaction, the Plan fiduciary which 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 failure on the part of the Borrower to comply
with the conditions of the exemption.
(k) Prior to any Plan's approval of any transaction with the
Borrower, the Plan is provided copies of the proposed and final
exemptions covering the exemptive relief described herein.
SECTION III. Conditions Applicable to Part Two of the Exemption--
Exclusive Borrowing Arrangements Between Plans and the Borrower
(a) For each Plan, neither the Borrower nor any affiliate has or
exercises discretionary authority or control over the Plan's investment
in the securities available for loan, nor do they render investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets.
(b) The Borrower is a party in interest with respect to each Plan
(including a fiduciary) solely by reason of providing services to the
Plan, or solely by reason of a relationship to a service provider
described in section 3(14)(F), (G), (H), or (I) of the Act.
[[Page 37523]]
(c) The Borrower directly negotiates an exclusive borrowing
agreement (the Borrowing Agreement) with a Plan fiduciary which is
independent of the Borrower and its affiliates.
(d) The terms of each loan of securities by a Plan to the Borrower
are at least as favorable to such Plan as those of a comparable arm's
length transaction between unrelated parties, taking into account the
exclusive arrangement.
(e) In exchange for granting the Borrower the exclusive right to
borrow certain securities, each Plan will receive from the Borrower
either (1) a flat fee (which may be equal to a percentage of the value
of the total securities subject to the Borrowing Agreement from time to
time); (2) a periodic payment that is equal to a percentage of the
value of the total balance of outstanding borrowed securities; or (3)
any combination of (1) and (2) (collectively, the Exclusive Fee). If
the Borrower deposits cash collateral, all the earnings generated by
such cash collateral shall be returned to the Borrower; provided that
the Borrower may, but shall not be obligated to, agree with the
independent fiduciary of the applicable Plan that a percentage of the
earnings on the collateral may be retained by the Plan or the Plan may
agree to pay the Borrower a rebate fee and retain the earnings on the
collateral (the Shared Earnings Compensation). If the Borrower deposits
non-cash collateral, all earnings on the non-cash collateral shall be
returned to the Borrower; provided that the Borrower may, but shall not
be obligated to, agree to pay the applicable Plan a lending fee (the
Lending Fee, together with the Shared Earnings Compensation, the
Transaction Lending Fee). The Transaction Lending Fee, if any, shall be
either in addition to the Exclusive Fee or an offset against such
Exclusive Fee. The Exclusive Fee and the Transaction Lending Fee may be
determined in advance or pursuant to an objective formula, and may be
different for different securities or different groups of securities
subject to the Borrowing Agreement. Any change in the Exclusive Fee or
the Transaction Lending Fee that the Borrower pays to the Plan with
respect to any securities loan requires the prior written consent of
the independent fiduciary of the Plan, except that consent is presumed
where the Exclusive Fee or the Transaction Lending Fee changes pursuant
to an objective formula. Where the Exclusive Fee or the Transaction
Lending Fee changes pursuant to an objective formula, the independent
fiduciary of the Plan must be notified at least 24 hours in advance of
such change and such independent Plan fiduciary must not object in
writing to such change, prior to the effective time of such change.
(f) The Borrower may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to each
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage or other percentage determined pursuant to an
objective formula.
(g) By the close of business on or before the day the loaned
securities are delivered to the Borrower, each Plan shall receive from
the Borrower (by physical delivery, book entry in a securities
depository located in the United States, wire transfer, or similar
means) collateral consisting of U.S. currency, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by a U.S. bank other than SEB
or any affiliate thereof, or any combination thereof, or other
collateral permitted under Prohibited Transaction Exemption 81-6, as
amended or superseded. Such collateral will be deposited and maintained
in an account which is separate from the Borrower's accounts and will
be maintained with an institution other than the Borrower. For this
purpose, the collateral may be held on behalf of a Plan by an affiliate
of the Borrower that is the trustee or custodian of such Plan.
(h) The market value (or in the case of a letter of credit, the
stated amount) of the collateral initially equals at least 102 percent
of the market value of the loaned securities on the close of business
on the day preceding the day of the loan, and, if the market value of
the collateral at any time falls below 100 percent (or such higher
percentage as the Borrower and the independent fiduciary of a Plan may
agree upon) of the market value of the loaned securities, the Borrower
delivers additional collateral on the following day to bring the level
of the collateral back to at least 102 percent. The level of the
collateral is monitored daily by each Plan or its designee, which may
be SEB or any of its affiliates which provides custodial or directed
trustee services in respect of the securities covered by the applicable
Borrowing Agreement. Such Borrowing Agreement shall give the applicable
Plan title to the collateral until such collateral is redelivered to
SEB pursuant to the terms of the Borrowing Agreement.
(i) Before entering into any Borrowing Agreement, the Borrower
furnishes to the applicable Plan the most recent publicly available
audited and unaudited statements of its financial condition, as well as
any publicly available information which it believes is necessary for
the independent fiduciary to determine whether the Plan should enter
into or renew the Borrowing Agreement.
(j) Each Borrowing Agreement contains a representation by the
Borrower that as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished statements of financial condition.
(k) Each Plan receives at least the equivalent of all distributions
made during the applicable loan period, 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 tax withholdings)\6\ had it remained the
record owner of the securities.
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\6\ See Footnote 4, infra.
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(l) Each Borrowing Agreement and any outstanding securities loans
with respect thereto may be terminated by either party at any time
without penalty (except for, if a Plan has terminated its Borrowing
Agreement, the return to the Borrower of a pro rata portion of the
Exclusive Fee paid by the Borrower to the Plan), whereupon the Borrower
returns any borrowed securities (or the equivalent thereof in the event
of reorganization, recapitalization, or merger of the issuer of the
borrowed securities) to the applicable Plan within the lesser of five
business days of written notice of termination or the customary
settlement period for such securities.
(m) In the event that the Borrower fails to return securities in
accordance with a Borrowing Agreement, the applicable Plan will have
the right under the Borrowing Agreement to purchase securities
identical to the borrowed securities and apply the collateral to
payment of the purchase price. If the collateral is insufficient to
satisfy the Borrower's obligation to return the Plan's securities, the
Borrower will indemnify the Plan in the U.S. with respect to the
difference between the replacement cost of the securities and the
market value of the collateral on the date the loan is declared in
default, together with expenses incurred by the Plan plus applicable
interest at a reasonable rate, including reasonable attorneys' fees
incurred by the Plan for legal action arising out of default on the
loans, or failure by the Borrower to properly
[[Page 37524]]
indemnify the Plan, except to the extent that such losses or damages
are caused by the Plan's own negligence.
(n) Except as otherwise provided herein, all procedures regarding
the securities lending activities, at a minimum, conform to the
applicable provisions of PTE 81-6 (as amended or superseded), as well
as to applicable securities laws of the United States and Sweden, as
appropriate.
(o) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to lend securities to the
Borrower; provided, however, that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization, whose assets are commingled for investment purposes in a
single master trust or any other entity the assets of which are ``plan
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which
entity is engaged in securities lending arrangements with the Borrower,
the foregoing $50 million requirement shall be deemed satisfied if such
trust or other entity has aggregate assets which are in excess of $50
million; provided that, if the fiduciary responsible for making the
investment decision on behalf of such master trust or other entity is
not the employer or an affiliate of the employer, such fiduciary has
total assets under its management and control, exclusive of the $50
million threshold amount attributable to plan investment in the
commingled entity, which are in excess of $100 million.
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization, whose assets are commingled for investment purposes in a
group trust or any other form of entity the assets of which are ``plan
assets'' under the Plan Asset Regulation, which entity is engaged in
securities lending arrangements with the Borrower, 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--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above are formed for the sole
purpose of making loans of securities.)
(p) Prior to any Plan's approval of the lending of its securities
to the Borrower, a copy of this exemption and the notice of pendency is
provided to the Plan, and the Borrower informs the independent
fiduciary that the Borrower is not acting as a fiduciary of the Plan in
connection with its borrowing securities from the Plan.\7\
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\7\ The Department notes SEB's representation that, under the
exclusive borrowing arrangements, neither the Borrower nor any of
its affiliates will perform the essential functions of a securities
lending agent, i.e., SEB will not be the fiduciary who negotiates
the terms of the Borrowing Agreement on behalf of the Plan, the
fiduciary who identifies the appropriate borrowers of the securities
or the fiduciary who decides to lend securities pursuant to either a
general securities lending arrangement or an exclusive borrowing
arrangement. However, SEB or its affiliates may monitor the level of
collateral and the value of the loaned securities.
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(q) The independent fiduciary of each Plan shall receive monthly
reports with respect to the securities lending transactions, including
but not limited to the information set forth in the following sentence,
so that an independent Plan fiduciary may monitor such transactions
with the relevant Borrower. The monthly report will list for a
specified period all outstanding or closed securities lending
transactions. The report will identify for each open loan position, the
securities involved, the value of the security for collateralization
purposes, the current value of the collateral, the rebate or premium
(if applicable) at which the security is loaned, and the number of days
the security has been on loan. At the request of a Plan, such a report
will be provided on a daily or weekly basis, rather than a monthly
basis. Also, upon request of a Plan, the relevant Borrower will provide
the Plan with daily confirmations of securities lending transactions.
SECTION IV.
General Conditions
(a) In addition to the above conditions, all loans involving the
Borrower must satisfy the following supplemental requirements:
(1) The Borrower is a bank which is subject to regulation by the
Swedish Financial Supervisory Authority (Finansin-spektionen).
(2) The Borrower is in compliance with all applicable provisions of
Rule 15a-6 (17 CFR 240.15a-6) under the Securities Exchange Act of
1934, as amended which provides foreign broker-dealers a limited
exception from United States registration requirements.
(3) All collateral is maintained in United States dollars or in
U.S. dollar-denominated securities or letters of credit, or other
collateral permitted under PTE 81-6 (as amended or superseded).
(4) All collateral is held in the United States and the situs of
the applicable Borrowing Agreement 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.
(5) Prior to entering into a transaction involving the Borrower,
the Borrower must:
(i) Agree to submit to the jurisdiction of the United States;
(ii) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(iii) Consent to the service of process on the Process Agent; and
(iv) Agree that enforcement by a Plan of the indemnity provided by
the Borrower will occur in the United States courts.
(b) The Borrower maintains, or causes to be maintained, 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 are necessary to enable the persons
described in paragraph (c)(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 SEB 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 the Borrower 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 below by paragraph (c)(1).
(c)(1) Except as provided in subparagraph (c)(2) of this paragraph
and not withstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (b) are
unconditionally available at their customary location or
[[Page 37525]]
examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission;
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of participating Plan, or any
duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in paragraphs (c)(1)(ii)-
(t)(1)(iv) of this paragraph (c)(1) are authorized to examine the trade
secrets of SEB or its affiliates or commercial or financial information
which is privileged or confidential.
Section V. Definitions
(a) An ``affiliate'' of a person means:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual);
(2) Any officer, director, employee or relative (as defined in
section 3(15) of the Act) of any such other person or any partner in
any such person; and
(3) Any corporation or partnership of which such person is an
officer, director or employee, or in which such person is a partner.
(b) The term ``borrower'' includes SEB and any other affiliate of
SEB that now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer or U.S. bank.
Effective Date: This exemption is effective as of October 23, 2002.
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 (the Notice) published on May 5, 2003
at 68 FR 23768.
Written Comments
The Department received one written comment with respect to the
Notice. The comment letter, which was submitted on behalf of SEB by its
outside legal counsel, is intended to modify the Summary of Facts and
Representations (the Summary) of the Notice, as discussed below.
1. Footnote 6. On page 23770 of the Notice, SEB states that
Footnote 6 of the Summary contains a reference to a non-existent
``Footnote 2.'' SEB explains that the correct reference should have
been to another footnote, i.e., ``Footnote 4,'' which describes the tax
implications of foreign securities lending on an investing Plan.
2. Representation 18. On page 23374 of the Notice, the first
sentence of Representation 18 of the Summary states, in part, that ``in
the event a loan is terminated and the Borrower fails to return the
borrowed securities, or the equivalent thereof, within the time
described in Representation 18 above, the Plan may purchase securities
identical to the borrowed securities * * *'' SEB notes that the
reference should be to ``Representation 17'' rather than to
``Representation 18.''
3. Representation 32. On page 23777 of the Notice, in
Representation 32 of the Summary, the last sentence of the fourth
paragraph states, that ``the Applicant concludes that a Plan can bring
an enforcement action, under an expedited procedure, on a foreign money
judgment in New York to attach the assets of SEB's New York branch
located in New York.'' For purposes of clarification, SEB suggests that
the word ``often'' be inserted before the phrase ``under an expedited
procedure.'' As a result, the sentence would now read as follows:
* * * Thus, the Applicant concludes that the Plan can bring an
enforcement action, often under an expedited procedure, on a foreign
money judgment in New York to attach the assets of SEB's New York
branch located in New York.
The Department concurs with SEB's comments and suggested changes,
and it takes note of the foregoing revisions to the Notice. In
addition, the Department has revised Footnote 4 of the operative
language to reflect the correct footnote reference.
Accordingly, after giving full consideration to the entire record,
including SEB's written comment, the Department has decided to grant
the exemption, as modified herein.
For further information regarding the comment and other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-11133) 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 Employee Benefits Security Administration, Room N-1513, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210.
For Further Information Contact: Ms. Blessed Chuksorji of the
Department, telephone (202) 693-8567. (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 exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) This exemption is 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 this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC this 19th day of June, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department of Labor.
[FR Doc. 03-15929 Filed 6-23-03; 8:45 am]
BILLING CODE 4510-29-P
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