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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Salomon Smith Barney Inc, et al [Notices] [01/27/1999]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Salomon Smith Barney Inc, et al [01/27/1999]

[PDF Version]

Volume 64, Number 17, Page 4127-4132

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-04; Exemption Application No. D-
10288, et al.]

 
Grant of Individual Exemptions; Salomon Smith Barney Inc, 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.
    Salomon Smith Barney, Inc. Located in New York, New York.

[Prohibited Transaction Exemption 99-04; Exemption Application No. 
D-10288]

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 to any purchase or sale of securities between certain 
affiliates of Salomon Smith Barney, Inc. (SSB) 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, SSB, 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

[[Page 4128]]

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 a Plan.
    B. The restrictions of sections 406(a)(1)(A) through (D) 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 
(D) of the Code, shall not apply 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 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) <SUP>1</SUP> had it remained the record owner of such 
securities;
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    \1\ 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 the 
Plan's 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 (PTCE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 
FR 18754, May 19, 1987), as it may be amended or superseded; 
<SUP>2</SUP>
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    \2\ PTCE 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,

[[Page 4129]]

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
    (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 (S.E.C.) 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;
    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 S.E.C.; (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 Salomon 
Smith Barney Inc. (or its successor in name within Citigroup) 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; 
or
    (4) the Ministry of Finance and the Tokyo Stock Exchange in Japan;
    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 June 7, 1996.

    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 October 6, 1998 at 63 FR 
53703.

Written Comments

    The Department received written comments with respect to the notice 
of proposed exemption (the Notice), which were submitted by the 
applicant. The comments request certain modifications and additions to 
the operative language of the final exemption and to the Summary of 
Facts and Representations (the Summary) contained in the Notice (see 63 
FR 53705). These modifications and additions are discussed below.
    1. First, in order to perfect the record upon which the Notice was 
based, the comments provide new information regarding certain corporate 
mergers and restructurings that have occurred. In November, 1997, a 
subsidiary of the then Travelers Group Inc. (now, Citigroup Inc., as 
discussed below) acquired all of the shares of Salomon Inc., the 
ultimate parent of Salomon Brothers Inc. (Salomon Bros.). Initially, 
Salomon Bros. and Smith Barney Inc. (Smith Barney), an affiliate of 
Travelers Group Inc., were operated as separately registered broker-
dealers. However, on September 1, 1998, Salomon Bros. was merged into 
Smith Barney, and Smith Barney became the surviving corporation and 
changed its name to Salomon Smith Barney Inc. On October 15, 1998, 
Salomon Smith Barney Inc. was merged into Pendex Real Estate 
Corporation, a New York corporation. The New York entity survived the 
merger and changed its name to Salomon Smith Barney Inc., a New York

[[Page 4130]]

corporation. In addition, in April of 1998, Travelers Group Inc. and 
Citicorp announced a proposed merger. On October 8, 1998, the merger 
closed, and Citicorp was merged into a subsidiary of Travelers Group 
Inc. Travelers Group Inc. became a bank holding company and changed its 
name to Citigroup Inc.
    Accordingly, the applicant requests, and the Department concurs 
with, the following revisions to the Notice, which are reflected in 
this exemption.
    a. All references to Salomon Brothers Inc. should be changed to 
Salomon Smith Barney Inc. and all references to Salomon Bros. to SSB.
    b. In Paragraph 1 of the Summary, the first two full subparagraphs 
and the first sentence of the third subparagraph (see 63 FR 53705, 
column 3) should be replaced with the following:

    Salomon Smith Barney Inc., a New York corporation, is an 
indirect subsidiary of Salomon Smith Barney Holdings Inc., a 
Delaware corporation, which in turn is a subsidiary of the Citigroup 
Inc. (formerly the Travelers Group Inc.). Salomon Smith Barney Inc. 
is one of the largest full-line investment service firms in the 
United States. It is registered with and regulated by the S.E.C. as 
a broker-dealer, is registered with and regulated by the Commodities 
Futures Trading Commission as a futures commission merchant, is a 
member of the New York Stock Exchange and other principal securities 
exchanges in the United States, and is also a member of the National 
Association of Securities Dealers, Inc. As of December 31, 1997, the 
then Travelers Group Inc. had approximately $387 billion in assets 
and approximately $21 billion in stockholders' equity.
    SSB has several affiliates which are broker-dealers or banks. 
Those covered by the proposed exemption * * * etc.

    c. The references to Salomon Bros. Canada Inc., Salomon Bros. U.K. 
Limited, Salomon Bros. U.K. Equity Limited, Salomon Bros. International 
Limited, Salomon Bros. AG, and Salomon Bros. Asia should be changed to 
Salomon Smith Barney Canada Inc., Salomon Brothers U.K. Limited, 
Salomon Brothers U.K. Equity Limited, Salomon Brothers International 
Limited, Salomon Brothers AG, and Salomon Smith Barney (Japan) Limited, 
respectively.
    2. Second, in consideration of the corporate mergers and 
restructurings that have occurred or may occur in the future involving 
SSB, the comments request that the Department confirm that this 
exemption will continue to be effective for any successor entity to 
SSB, provided that Citigroup remains the indirect parent corporation of 
such successor entity. In this regard, the Department notes that this 
exemption would be effective if SSB reorganized or changed its name, 
provided that such actions did not occur in connection with the sale of 
the underlying assets of SSB to an unrelated third party. Thus, in 
response to this comment, the Department has modified the definition of 
the term ``Foreign Affiliate'' in Section III.B. of the exemption to 
clarify that such term applies to an affiliate of SSB or its successor 
in name within Citigroup.
    3. Third, the comments request certain modifications in order to 
clarify that the provisions of this exemption are consistent with other 
recent similar exemptions granted by the Department.<SUP>3</SUP>
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    \3\ See, e.g., Prohibited Transaction Exemption (PTE) 97-08 (62 
FR 4811, January 31, 1997) regarding Morgan Stanley & Co., PTE 97-57 
(62 FR 56203) regarding NatWest Securities Corp., and PTE 98-62 (63 
FR 71307) regarding Barclays Bank PLC.
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    a. The comments state that Section I.A. of the Notice (see 63 FR 
53703-4) should be revised to read as follows (note deleted and 
italicized language):

    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 to any purchase or sale of securities [delete 
``including options on securities''] between certain affiliates of 
Salomon Smith Barney Inc. (SSB) 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, SSB, or a Foreign Affiliate,* * *

    The revised language regarding options, above, is more specific in 
order to clarify that such options may be written by a Plan. In this 
regard, the Department cautions Plan fiduciaries to understand the 
risks and benefits associated with particular options strategies and to 
monitor such strategies effectively, in order to act prudently, as 
required under section 404(a) of the Act, when making investment 
decisions on behalf of a Plan.
    b. The comments state that the following sentence should be added 
to the end of Section I.A., Paragraph 3 of the Notice (see 63 FR 53704, 
column 1):

    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 a Plan.

    c. The comments state that the word ``any'' in Section I.B, 
Paragraph 1 of the Notice (see 63 FR 53704, column 1) should be 
replaced with the word ``such'' so that the phrase reads ``in 
connection with such extension of credit.''
    d. The comments state that, in order to avoid any ambiguity, 
Footnote 4 of the Summary (see 63 FR 53707, center column) should be 
modified by adding the following italicized language:

    SSB 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 Department concurs with the applicant's requests and, where 
necessary, has so modified the language of this exemption.
    4. Fourth, the comments request, as a matter of clarification, that 
the following sentence be added to the end of the first subparagraph of 
Paragraph 11 in Section I.C. of the Notice (see 63 FR 53705, column 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.

    The Department acknowledges the above-described clarification to 
the Notice and has so modified the language of this exemption.
    5. Fifth, the comments request certain clarifications and additions 
to the information contained in Paragraph 6 of the Summary (see 63 FR 
53706-07), in order to conform the language of the Summary to the 
relevant language of S.E.C. Rule 15a-6 and to reflect certain S.E.C. 
interpretations or modifications to that rule, pursuant to a No-Action 
letter issued to Cleary, Gottlieb, Steen & Hamilton on April 9, 1997.
    a. The comments state that references to ``U.S. major institutional 
investor'' and ``major institutional investor'' should be changed to 
``major U.S. institutional investor'' in order to be consistent with 
Rule 15a-6.
    b. The comments state that a footnote should be inserted after the 
definition of ``major U.S. institutional investor'' in the third full 
subparagraph of Paragraph 6 of the Summary (see 63 FR 53707, column 1) 
which reads as follows:

    Note that the categories of entities that qualify as ``major 
U.S. institutional investors'' has been expanded by an S.E.C. No-
Action letter. See No-Action Letter issued to Cleary, Gottlieb, 
Steen & Hamilton on April 9, 1997 (the April 9, 1997 No-Action 
Letter).

    c. The comments state that another footnote should be inserted 
after the text of subparagraph (c)(5) of Paragraph 6 of the Summary 
(see 63 FR 53707, center column) which reads as follows:

    Under certain circumstances described in the April 9, 1997 No-
Action Letter (e.g.,

[[Page 4131]]

clearance and settlement transactions), there may be direct 
transfers of funds and securities between a Plan and a Foreign 
Affiliate. Please note that in such situations (as in the other 
situations covered by Rule 15a-6), the U.S. broker-dealer will not 
be acting as a principal with respect to any duties it is required 
to undertake pursuant to Rule 15a-6.

    d. The comments state that the following sentence should be 
inserted at the end of subparagraph (c)(6) of Paragraph 6 of the 
Summary (see 63 FR 53707, center column):

    Under certain circumstances, the foreign associated person may 
have direct communications and contact with the U.S. institutional 
investor. (See April 9, 1997 No-Action Letter.)

    The Department acknowledges the above-described clarifications to 
the information included in the Summary.
    6. Finally, with respect to the lending of securities by a Plan to 
a Foreign Affiliate, the applicant states that it wishes to avoid the 
necessity of amending this individual exemption each time PTCE 81-6 is 
further amended or superseded. Therefore, the comments request that the 
following phrase be added to the language at the end of Section I.C., 
Paragraph 9 of the Notice (see 63 FR 53704, column 3), relating to the 
required time for delivery of borrowed securities back to the plan:

    ``or, alternatively, such period as permitted by Prohibited 
Transaction Class Exemption (PTCE) 81-6 (46 FR 7527, January 23, 
1981, as amended at 52 FR 18754, May 19, 1987), as it may be amended 
or superseded.''

    In addition, the comment states that the above phrase should be 
inserted after the sentence ending ``. . . whichever is least'' in 
Paragraph 18 of the Summary (see 63 FR 53708, column 3), also relating 
to the required time for delivery of borrowed securities back to the 
plan.
    The Department has modified the language of this exemption to 
reflect the applicant's clarifications to the record, as discussed 
above, and also acknowledges such clarifications as they relate to the 
information contained in the Notice, as published in the Federal 
Register on October 6, 1998.
    No other comments were received by the Department.
    Accordingly, based on 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.)

    Individual Retirement Accounts (the IRAs) for Sharilyn Brune, 
Richard C. Glowacki, Carl B. Mockensturm, Arthur T. Parrish, W. Alan 
Robertson, David A. Snavely and Duane Stranahan, Jr. (collectively, 
the IRA Participants) Located in Holland, OH.

(Prohibited Transaction Exemption 99-05; Application Nos. D-10636--
D-10642, respectively)

Exemption

    The sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply, effective December 1, 1998 to (1) the cash sale by the 
IRAs <SUP>4</SUP> to TTC Holdings, Inc. (TTC), the parent of The Trust 
Company of Toledo, N.A., the trustee of the IRAs and a disqualified 
person, of certain preferred stock (the Preferred Stock) issued by TTC; 
and (2) the arrangement for the subsequent purchase by the IRA 
Participants in their individual capacities, from TTC, pursuant to an 
agreement with TTC, of an equal number of shares of common stock (the 
Common Stock) issued by TTC, provided the following conditions are met:
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    \4\ Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the 
jurisdiction of Title I of the Employee Retirement Income Security 
Act of 1974 (the Act). However, there is jurisdiction under Title II 
of the Act pursuant to section 4975 of the Code.
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    (a) The terms and conditions of the sale and purchase transactions 
were at least as favorable to each IRA as the terms obtainable in an 
arm's length transaction with an unrelated party.
    (b) The sale by the IRAs of the Preferred Stock and the purchase by 
the IRA Participants of the Common Stock, in their individual 
capacities, were one-time transactions for cash which occurred on the 
same business day;
    (c) Each IRA received from TTC, as the sales price for the 
Preferred Stock, cash consideration reflecting the fair market value of 
such stock as determined by a qualified, independent appraiser;
    (d) Each IRA Participant purchased, in his or her individual 
capacity, shares of the Common Stock which were equal in number to the 
shares of Preferred Stock sold by TTC;
    (e) No IRA was required to pay any commissions, fees or other 
expenses in connection with each sale transaction; and
    (f) An independent fiduciary determined that the transactions 
described herein were in the best interest and protective of the IRAs 
at the time of the transactions; supervised and monitored such 
transactions on their behalf; assured that the conditions of the 
proposed exemption were met; and took whatever actions were necessary 
and proper to protect the interests of the IRAs, including reviewing 
amounts paid by TTC for the Preferred Stock.

EFFECTIVE DATE: This exemption is effective as of December 1, 1998.

    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 16, 1998 at 63 
FR 69319.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department at 
(202) 219-8881. (This is not a toll-free number.)
    Individual Retirement Accounts (the IRAs) for Robert C. Hummel, 
Garth L. Gibson, Hugh B. Force, Ellen K. Davidson and Michael 
Davidson (Collectively; the Participants) Located respectively in 
Greeley, Colorado; Montrose, Colorado; Fort Collins, Colorado; Green 
River, Wyoming; and Green River, Wyoming.

(Prohibited Transaction Exemption 99-06; Exemption Application Nos. 
D-10683, D-10684, D-10685, D-10697 and D-10698)

Exemption

    The sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply, effective December 15, 1998, to the cash sales (the Sales) 
of certain shares of closely-held common stock of First Mountain 
Company (the Stock) by the IRAs <SUP>5</SUP> to the Participants, 
disqualified persons with respect to the IRAs, provided that the 
following conditions have been met:
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    \5\ Because each IRA has only one Participant, there is no 
jurisdiction under 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
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    1. The terms and conditions of the Sales were at least as favorable 
to each IRA as those obtainable in an arm's-length transaction with an 
unrelated party;
    2. The Sale of the Stock by each IRA was a one-time transaction for 
cash;
    3. Each IRA received the fair market of the Stock, as was 
established by a qualified, independent appraiser, at the time of the 
Sale; and
    4. The IRAs did not pay any commissions, costs or other expenses in 
connection with the Sales.
Effective Date: The exemption is effective as of December 15, 1998.

    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 16, 1998 at 63 
FR 69323 (the Notice).

[[Page 4132]]

Written Comments

    The Department received one written comment from the applicant (the 
Comment) with respect to the Notice and no requests for a public 
hearing. The Comment states that Robb and Lynne Morgan Ruyle did not 
consummate the transaction as outlined in the Notice. Instead, Robb and 
Lynne Morgan Ruyle each decided to terminate their respective IRAs, 
distribute the IRAs' assets to themselves, file the appropriate tax 
returns, and pay the penalties and taxes associated with such 
distributions. As such, the Applicant states that this exemption need 
not apply to the Robb and Lynne Morgan Ruyle IRAs.
    The Department concurs and has eliminated all references to the 
Robb and Lynne Morgan Ruyle IRAs in this exemption. <SUP>6</SUP>
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    \6\ The files containing exemption requests for Robb and Lynn 
Morgan Ruyle were assigned numbers D-10687 and D-10686, 
respectively. Because the applicant requested that this exemption 
not apply to the Robb and Lynn Morgan Ruyle IRAs, the Department has 
closed these files administratively.
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    Accordingly, the Department has determined to grant the proposed 
exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department 
at (202) 219-8883. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions do not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application 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 21st day of January, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-1849 Filed 1-26-99; 8:45 am]
BILLING CODE 4510-29-P