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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Pikeville National Bank & Trust Company; Trust Company of Kentucky; and First American Bank (Collectively, the Banks), et al. [Notices] [01/31/1997]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Pikeville National Bank & Trust Company; Trust Company of Kentucky; and First American Bank (Collectively, the Banks), et al. [01/31/1997]

[PDF Version]

Volume 62, Number 21, Page 4810-4813

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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 97-07; Exemption Application Nos. D-
10079 Through D-10082, et al.]

 
Grant of Individual Exemptions; Pikeville National Bank & Trust 
Company; Trust Company of Kentucky; and First American Bank 
(Collectively, the Banks), et al.

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 (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type proposed to the Secretary 
of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Pikeville National Bank & Trust Company; Trust Company of Kentucky; and 
First American Bank (Collectively, the Banks) Located in Pikeville and 
Ashland, Kentucky

[Prohibited Transaction Exemption 97-07; Application Numbers D-10079 
Through D-10082]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to: (1) The cash sales on December 28, 1994 and January 
13, 1995, of certain collateralized mortgage obligations (CMOs) and 
other mortgage-backed securities (collectively, the Securities) held by 
eighty-six (86) employee benefit plans, Keogh plans and individual 
retirement accounts (IRAs) for which the Banks act as trustee (the 
Plans) to Pikeville National Corporation (PKVL), a party in interest 
with respect to the Plans; (2) the ``makewhole'' payments made by PKVL 
to the Plans on January 20, 1995, in connection with the sale of 
certain Securities by the Plans on the open market on November 2, 1994; 
and (3) the proposed additional ``makewhole'' and interest payments to 
be made by PKVL to the Plans, as of the

[[Page 4811]]

date the exemption is granted, as a result of: (i) The additional 
amounts owed to such Plans based on the amortized cost of the 
Securities at the time of the transactions in situations where the 
amortized cost exceeded the outstanding principal balance of the 
Securities (plus a reasonable rate of interest on such amounts), and 
(ii) the additional accrued but unpaid interest on the Securities which 
was owed to the Plans at the time of the sale to PKVL on December 28, 
1994 (plus a reasonable rate of interest on such amounts); provided 
that the following conditions are met:
    (a) Each sale was a one-time transaction for cash;
    (b) Each Plan has received or will receive a total amount for the 
Securities owned by the Plan, including the sale proceeds and 
``makewhole'' payments for transactions that occurred either on the 
open market or with PKVL, which is equal to the greater of: (i) The 
outstanding principal balance for each Security owned by the Plan, plus 
accrued but unpaid interest, at the time of the sale; (ii) the 
amortized cost for each Security owned by the Plan on the date of the 
sale, plus accrued but unpaid interest, as determined by the Banks; or 
(iii) the fair market value of each Security owned by the Plan as 
determined by the Banks from broker-dealers or pricing services 
independent of the Banks at the time of the sale;
    (c) With respect to the ``makewhole'' payments made by PKVL to the 
Plans on January 20, 1995, the Plans receive a reasonable rate of 
interest for the period from November 2, 1994 (the date of the sale of 
certain Securities on the open market) until January 20, 1995 (the date 
such payments were made), to the extent this amount is not already 
accounted for under the additional ``makewhole'' payments which are due 
for the Securities based on the amounts referred to above in Item 
(3)(i);
    (d) The Plans did not pay any commissions or other expenses with 
respect to the transactions;
    (e) The Banks, as trustee of the Plans, determined that the sale of 
the Securities was in the best interests of each of the Plans and their 
participants and beneficiaries at the time of the transaction;
    (f) The Banks took all appropriate actions necessary to safeguard 
the interests of the Plans and their participants and beneficiaries in 
connection with the transactions; and
    (g) Each Plan received a reasonable rate of return on the 
Securities during the period of time that it held the Securities.

EFFECTIVE DATE: This exemption is effective as of December 28, 1994, 
and January 13, 1995, for the sales of the Securities made to PKVL, and 
as of January 20, 1995, for the ``makewhole'' payments made by PKVL in 
connection with the sale of the Securities to an unrelated party on 
November 2, 1994. In addition, this exemption is effective for the 
additional ``makewhole'' and interest payments due to the Plans as of 
the date such payments are made to the affected Plans.
    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 Proposal) published on November 
6, 1996 at 61 FR 57462.

WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted a comment 
letter on the Proposal which requested that certain modifications be 
made by the Department.
    First, the Banks request that the abbreviation ``PNC'', as used in 
the Proposal to refer to the Pikeville National Corporation, not be 
used in the final exemption. The applicant notes that the abbreviation 
``PNC'' is used for identification and promotion purposes by Pittsburgh 
National Corporation, a major bank holding company that was not 
involved in any way with the subject transactions. To avoid unnecessary 
confusion or misunderstandings by interested parties, the Banks request 
that references to the Pikeville National Corporation as ``PNC'' be 
changed to ``PKVL''.
    In this regard, the Department has deleted references to ``PNC'' 
and substituted ``PKVL''.
    Second, the Banks would like to clarify that there are fewer than 
eighty-nine plans involved in the subject transactions, as stated in 
the Proposal. The Banks represent that after the Proposal was published 
it was discovered that several ``plans'' were actually subaccounts to 
plans and not separate plans. Thus, the Banks state that the correct 
number of ``plans'' involved is eighty-six (86).
    In this regard, the Department has modified the language of the 
exemption based on the applicant's clarification.
    Accordingly, the Department has determined to grant the requested 
exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Morgan Stanley & Co. Incorporated Located in New York, New York

[Prohibited Transaction Exemption 97-08; Exemption Application No. D-
10108]

Exemption

Section I--Transactions
    A. Effective August 25, 1995, the restrictions of section 
406(a)(1)(A) through (D) of the Employee Retirement Income Security Act 
of 1974 (the Act) and the taxes imposed by section 4975 (a) and (b) of 
the Internal Revenue Code of 1986 (the Code), by reason of section 4975 
(c)(1)(A) through (D) of the Code, shall not apply to any purchase or 
sale of a security between an employee benefit plan and a broker-dealer 
affiliated with Morgan Stanley & Co. and subject to British law (MSC/UK 
Affiliate), if the following conditions, and the conditions of Section 
II, are satisfied:
    (1) The MSC/UK Affiliate customarily purchases and sells securities 
for its own account in the ordinary course of its business as a broker-
dealer.
    (2) Such transaction is on terms at least as favorable to the plan 
as those which the plan could obtain in an arm's length transaction 
with an unrelated party.
    (3) Neither the MSC/UK 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 C.F.R. 2510.3-21(c)) with respect to 
those assets, and the MSC/UK 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 MSC/UK 
Affiliate shall not be deemed to be a fiduciary with respect to a plan 
solely by reason of providing securities custodial services for a plan.
    B. Effective August 25, 1995, the restrictions of section 
406(a)(1)(A) through (D) of the Act and the taxes imposed by 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 lending of securities that are 
assets of an employee benefit plan to an MSC/UK Affiliate if the 
following conditions, and the conditions of Section II, are satisfied:
    (1) Neither the MSC/UK Affiliate (the Borrower) nor an affiliate of 
the Borrower has discretionary authority or control with respect to the 
investment of the plan assets involved in the

[[Page 4812]]

transaction, or renders investment advice (within the meaning of 29 
C.F.R. 2510.3-21(c)) with respect to those assets;
    (2) The 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 
Government or its agencies or instrumentalities, or irrevocable United 
States bank letters of credit issued by a person other than the 
Borrower or an affiliate thereof, 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 Section I(B)(2) must be held 
in the United States;
    (3) Prior to the making of any such loan, the Borrower shall have 
furnished the following items to the fiduciary for the plan who is 
making decisions on behalf of the plan with respect to the lending of 
securities (the Lending Fiduciary): (1) The most recent available 
audited statement of the Borrower's financial condition, (2) the most 
recent available unaudited statement of the Borrower's financial 
condition (if more recent than such audited stated), and (3) a 
representation that, at the time the loan is negotiated, there has been 
no material adverse change in the Borrower's financial condition since 
the date of the most recent financial statement furnished to the plan 
that has not been disclosed to the Lending Fiduciary. Such 
representation may be made by the Borrower's agreement that each such 
loan shall constitute a representation by the Borrower that there has 
been no such material adverse change;
    (4) The loan is made pursuant to a written loan agreement, the 
terms of which are at least as favorable to the plan as those which the 
plan could obtain in an arm's-length transaction with an unrelated 
party. Such agreement may be in the form of a master agreement covering 
a series of securities-lending transactions;
    (5) The plan (1) receives a reasonable fee that 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. Where the plan has that opportunity, 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 an arm's-length 
transaction;
    (6) The plan receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including, but not limited to, cash dividends, interest payments, 
shares of stock as a result of stock splits and rights to purchase 
additional securities;
    (7) If the market value of the collateral on the close of trading 
on a business day is less than 100 percent of the market value of the 
borrowed securities at the close of trading on that day, the Borrower 
shall deliver, by the close of business on the following business day, 
an additional amount of collateral (as described in paragraph (2)) the 
market value of which, together with the market value of all previously 
delivered collateral, equals 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;
    (8) The loan may be terminated by the plan at any time, whereupon 
the Borrower 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 (1) the customary delivery 
period for such securities, (2) three business days, or (3) the time 
negotiated for such delivery by the plan and the Borrower, whichever is 
lesser; and
    (9) In the event the loan is terminated and the Borrower fails to 
return the borrowed securities or the equivalent thereof within the 
time described in paragraph (8) above, then (i) the plan may, under the 
terms of the loan agreement, 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 agreement, and any expenses 
associated with the sale and/or purchase, and (ii) the Borrower is 
obligated, under the terms of the loan agreement, to pay, 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 Borrower may, in the event the 
Borrower 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 such replacement 
is approved by the Lending Fiduciary.
    (10) If the Borrower fails to comply with any condition of this 
exemption, in the course of engaging in a securities-lending 
transactions, 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 Borrower's failure to comply with the 
conditions of the exemption.
    C. Effective August 25, 1995, the restrictions of sections 
406(a)(1)(A) through (D) and 406(b)(2) of the Act and the taxes imposed 
by section 4975 (a) and (b) of the Code shall not apply to any 
extension of credit to an employee benefit plan by an MSC/UK Affiliate 
to permit the settlement of securities transactions or in connection 
with the writing of options contracts provided that the following 
conditions are met:
    (a) The MSC/UK Affiliate is not a fiduciary with respect to any 
assets of such plan, unless no interest or other consideration is 
received by such fiduciary or any affiliate thereof in connection with 
such extension of credit; and
    (b) Such extension of credit would be lawful under the Securities 
Exchange Act of 1934 and any rules or regulations thereunder if such 
act, rules or regulations were applicable.
Section II--General Conditions
    A. The MSC/UK Affiliate is registered as a broker-dealer with the 
Securities and Futures Authority of the United Kingdom (the S.F.A.);
    B. The MSC/UK Affiliate is in compliance with all requirements of 
Rule 15a-6 (17 CFR 240.15a-6) under the Securities and Exchange Act of 
1934, which provides for foreign broker-dealers a limited exemption 
from U.S. registration requirements;
    C. Prior to the transaction, the MSC/UK Affiliate enters into a 
written agreement with the plan in which the MSC/UK Affiliate consents 
to the jurisdiction of the courts of the United States with respect to 
the transactions covered by this exemption;
    D. (1) The MSC/UK Affiliate maintains or causes to be maintained 
within the United States for a period of six years from the date of 
such transaction such records as are necessary to enable the persons 
described in this section to determine whether the conditions of this

[[Page 4813]]

exemption have been met; except that a party in interest with respect 
to an employee benefit plan, other than the MSC/UK Affiliate, shall not 
be subject to a civil penalty under section 502(i) of the Act or the 
taxes imposed by section 4975(a) or (b) of the Code, if such records 
are not maintained, or are not available for examination as required by 
this section, and a prohibited transaction will not be deemed to have 
occurred if, due to circumstances beyond the control of the MSC/UK 
Affiliate, such records are lost or destroyed prior to the end of such 
six year period;
    (2) The records referred to in subsection (1) above are 
unconditionally available for examination during normal business hours 
by duly authorized employees of the Department of Labor, the Internal 
Revenue Service, plan participants and beneficiaries, any employer of 
plan participants and beneficiaries, and any employee organization any 
of whose members are covered by such plan; except that none of the 
persons described in this subsection shall be authorized to examine 
trade secrets of Morgan Stanley & Co. or the MSC/UK or any commercial 
or financial information which is privileged or confidential.
III--Definitions
    ``Affiliate'' of a person shall include: (i) Any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person; (ii) any officer, 
director, or partner, employee or relative (as defined in section 3(15) 
of the Act) of such other person; and (iii) 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.
    ``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.
    For a more complete statement of the facts and representations 
supporting this exemption, refer to the notice of proposed exemption 
published on November 13, 1996 at 61 FR 58237.

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

Cassemco, Inc. Retirement Plan and Trust Agreement (the Plan) Located 
In Cookeville, Tennessee

[Prohibited Transaction Exemption 96-09; Exemption Application No. D-
10350]

Exemption

    The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the cash sale (the Sale) by the Plan of certain 
securities (the Securities) to Cassemco, Inc., the sponsoring employer 
and party in interest with respect to the Plan; provided (1) the Sale 
is a one-time transaction for cash, (2) the Plan pays no commissions 
nor incurs any expenses in connection with the Sale, and (3) the Plan 
receives as consideration for the Sale no less than the fair market 
value of the Securities as of the date of the Sale.
    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 December 3, 1996, at 61 
FR 64160.

FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

PanAgora Asset Management, Inc. (PanAgora) Located in Boston, 
Massachusetts

[Prohibited Transaction Exemption 97-10; Exemption Application No. D-
10351]

Exemption

    PanAgora shall not be precluded from functioning as a ``qualified 
professional asset manager'' pursuant to Prohibited Transaction 
Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 1984) solely because 
of a failure to satisfy Section I(g) of PTE 84-14, as a result of 
affiliation with E.F. Hutton & Company, Inc. and Shearson Lehman 
Brothers, Inc., formerly Shearson Lehman Hutton, Inc.
    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 December 3, 1996 at 61 FR 
64161.

EFFECTIVE DATE: This exemption is effective as of September 22, 1989, 
the date on which PanAgora was formed.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
a 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 are true and complete and accurately describe all material 
terms of the transaction which is the subject of the exemption. In the 
case of continuing exemption transactions, if any of the material facts 
or representations described in the application change after the 
exemption is granted, the exemption will cease to apply as of the date 
of such change. In the event of any such change, application for a new 
exemption may be made to the Department.

    Signed at Washington, DC, this 28th day of January, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-2388 Filed 1-30-97; 8:45 am]
BILLING CODE 4510-29-P