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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Keystone Financial, Inc. and Certain of Its Affiliates (Keystone), et al. [Notices] [02/16/1999]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Keystone Financial, Inc. and Certain of Its Affiliates (Keystone), et al. [02/16/1999]

[PDF Version]

Volume 64, Number 30, Page 7667-7672

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-07; Exemption Application No. D-
10372, et al.]

 
Grant of Individual Exemptions; Keystone Financial, Inc. and 
Certain of Its Affiliates (Keystone), 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 Keystone Financial, 
Inc. and Certain of Its Affiliates (Keystone) Located in Harrisburg, 
Pennsylvania.

[Prohibited Transaction Exemption 99-07; Exemption Application No. D-
10372]

Exemption

Section I--Exemption for In-Kind Transfers of CIF Assets
    The restrictions of sections 406(a) and 406(b) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1) (A) through (F) of the Code, shall not 
apply to the in-kind transfers of assets of various employee benefit 
plans for which Keystone served as a fiduciary (the Client Plans), that 
were held in certain collective investment funds (CIFs) maintained by 
Keystone, in exchange for shares of the KeyPremier Funds (the Funds), 
an open-ended investment company registered under the Investment 
Company Act of 1940 (the ICA), for which Keystone is an investment 
adviser and may provide other services (i.e., Secondary Services, as 
defined below in Section II(h)), which occurred on December 2, 1996, 
February 3, 1997 and July 1, 1997,<SUP>1</SUP> provided that the 
following conditions were met:
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    \1\ In this regard, Keystone represents that any further in-kind 
transfers of CIF assets to the Funds will comply with the conditions 
of Prohibited Transaction Exemption (PTE) 97-41 (62 FR 42830, August 
8, 1997). PTE 97-41 permits the purchase by an employee benefit plan 
(i.e. a Client Plan) of shares of one or more open-end management 
investment companies (i.e mutual funds) registered under the ICA, in 
exchange for assets of the Client Plan transferred in-kind to the 
mutual fund from a collective investment fund (i.e. a CIF) 
maintained by a bank or a plan adviser, where the bank or plan 
adviser is the investment adviser to the mutual fund and also a 
fiduciary to the Client Plan, if the conditions of the exemption are 
met. However, as noted further below, Keystone distributed written 
confirmation to the Client Plans regarding the in-kind transfer of 
CIF assets made to the Funds within 120 days, rather than within the 
105-day period required by Section I(g) of PTE 97-41. Thus, an 
individual exemption to cover these specific CIF conversions is 
necessary to provide the appropriate retroactive relief.
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    (a) A fiduciary (the Second Fiduciary) who was acting on behalf of 
each affected Client Plan and who was independent of and unrelated to 
Keystone, as defined in Section II(g) below, received advance written 
notice of the in-kind transfer of assets of the CIFs in exchange for 
shares of the Fund and the disclosures described in paragraph (c) 
below.
    (b) On the basis of the information described in paragraph (c) 
below, the Second Fiduciary provided prior

[[Page 7668]]

written authorization for the in-kind transfer of the Client Plan's CIF 
assets in exchange for shares of the Funds, the investment of such 
assets in corresponding portfolios of the Funds, and the fees to be 
received by Keystone in connection with its services to the Fund. Such 
authorization by the Second Fiduciary must have been consistent with 
the responsibilities, obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act.
    (c) The Second Fiduciary who was acting on behalf of a Client Plan 
received in advance of the investment by the Plan in any of the Funds, 
a full and detailed written disclosure of information concerning the 
Funds which included, but was not limited to:
    (1) A current prospectus for each portfolio of each of the Funds in 
which such Client Plan was considering investing;
    (2) A statement describing the fees for investment management, 
investment advisory, or other similar services, and any fees for 
Secondary Services, as defined in Section II(h) below, including the 
nature and extent of any differential between the rates of such fees;
    (3) The reasons why Keystone considered such investments to be 
appropriate for the Client Plan; and
    (4) A statement describing whether there were any limitations 
applicable to Keystone with respect to which assets of the Client Plan 
may be invested in the Funds, and, if so, the nature of such 
limitations.
    (d) For each Client Plan, the combined total of all fees received 
by Keystone for the provision of services to the Client Plan, and in 
connection with the provision of services to any of the Funds in which 
the Client Plans invested, was not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (e) Neither Keystone nor an Affiliate received any fees payable 
pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection 
with the transactions.
    (f) All dealings between the Client Plans and any of the Funds were 
on a basis no less favorable to such Plans than dealings between the 
Funds and other shareholders holding the same class of shares as the 
Client Plans.
    (g) No sales commissions were paid by the Client Plans in 
connection with the in-kind transfers of CIF assets in exchange for 
shares of the Funds.
    (h) The transferred assets constituted the Client Plan's pro rata 
portion of all assets that were held by the CIF immediately prior to 
the transfer.
    (i) Following the termination of each CIF, each Client Plan 
received shares of the Funds that had a total net asset value equal to 
the Client Plan's pro rata share of the assets of the CIFs that were 
exchanged for such Fund shares on the date of transfer.
    (j) With respect to each in-kind transfer of CIF assets to a Fund, 
each Client Plan received shares of the Fund which had a total net 
asset value that was equal to the value of the Plan's pro rata share of 
the assets of the corresponding CIF on the date of the transfer, based 
on the current market value of the CIF's assets, as determined in a 
single valuation performed in the same manner as of the close of the 
same business day with respect to all such Plans participating in the 
transaction on such day, using independent sources in accordance with 
the procedures set forth by the Securities and Exchange Commission 
(SEC) Rule 17a-7(b) under the ICA (Rule 17a-7) for the valuation of 
such assets. Such procedures must have required that all securities for 
which a current market price was not obtained by reference to the last 
sale price for transactions reported on a recognized securities 
exchange or NASDAQ <SUP>2</SUP> were to be valued based on an average 
of the highest current independent bid and lowest current independent 
offer, as of the close of business on the last business day prior to 
the in-kind transfers, determined on the basis of reasonable inquiry 
from at least three sources that are broker-dealers or pricing services 
independent of Keystone.
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    \2\ The National Association of Securities Dealers Automated 
Quotation National Market System.
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    (k) Not later than thirty (30) days after completion of each in-
kind transfer of CIF assets in exchange for shares of the Funds which 
occurred on December 2, 1996, February 3, 1997, and July 1, 1997, 
Keystone sent by regular mail to the Second Fiduciary, a written 
confirmation which contained:
    (i) The identity of each of the assets that was valued for purposes 
of the transaction in accordance with SEC Rule 17a-7(b)(4) under the 
ICA;
    (ii) The price of each of the assets involved in the transaction; 
and
    (iii) The identity of each pricing service or market maker 
consulted in determining the value of such assets.
    (l) For each in-kind transfer of CIF assets, Keystone sent by 
regular mail to the Second Fiduciary, no later than one-hundred and 
twenty (120) days after completion of the asset transfer made in 
exchange for shares of the Funds,<SUP>3</SUP> a written confirmation 
which contained:
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    \3\ See Footnote 1 above.
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    (1) The number of CIF units held by each affected Client Plan 
immediately before the in-kind transfer, the related per unit value, 
and the aggregate dollar value of the units transferred; and
    (2) The number of shares in the Funds that were held by each 
affected Client Plan immediately following the in-kind transfer, the 
related per share net asset value, and the aggregate dollar value of 
the shares received.
    (m) Keystone maintains for a period of six (6) years the records 
necessary to enable the persons, as described in paragraph (n) below, 
to determine whether the conditions of the exemption have been, except 
that:
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Keystone, the 
records are lost or destroyed prior to the end of the six (6) year 
period, and
    (2) No party in interest, other than Keystone, shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required by paragraph (n) below.
    (n)(1) Except as provided in paragraph (n)(2) and notwithstanding 
any provisions of Section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (m) above are unconditionally available at 
their customary location for examination during normal business hours 
by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Any fiduciary of each of the Client Plans who has authority to 
acquire or dispose of shares of any of the Funds owned by such Plan, or 
any duly authorized employee or representative of such fiduciary; and
    (iii) Any participant or beneficiary of the Client Plans or duly 
authorized employee or representative of such participant or 
beneficiary; and
    (2) None of the persons described in paragraph (n)(1)(ii) and (iii) 
of this Section I shall be authorized to examine trade secrets of 
Keystone, or commercial or financial information which is privileged or 
confidential.
Section II--Definitions
    For purposes of this exemption,
    (a) The term ``Keystone'' means Keystone Financial, Inc., and 
affiliates, as defined in Section II(b)(1).
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries,

[[Page 7669]]

controlling, controlled by, or under common control with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Fund'' or ``Funds'' means the KeyPremier Funds for 
which Keystone served as investment adviser, and provided certain 
``Secondary Services'' (as defined paragraph (h) below), for the Funds 
that were involved in the in-kind transfers of CIF assets which 
occurred on December 2, 1996, February 3, 1997, and July 1, 1997.
    (e) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales of Fund shares, as calculated by 
dividing the value of all securities, determined by a method as set 
forth in a Fund's prospectus and statement of additional information, 
and other assets belonging to each of the portfolios in such Fund, less 
the liabilities charged to each portfolio, by the number of outstanding 
shares.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who was independent of and unrelated to Keystone at the time of 
the subject transaction. For purposes of this exemption, the Second 
Fiduciary will not be deemed to have been independent of and unrelated 
to Keystone if:
    (1) Such Second Fiduciary was directly or indirectly controlled, 
was controlled by, or was under common control with Keystone;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary was an officer, 
director, partner, or employee of Keystone (or is a relative of such 
persons);
    (3) Such Second Fiduciary directly or indirectly received any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this exemption.
    With respect to the Client Plans, if an officer, director, partner, 
or employee of Keystone (or a relative of such persons), was a director 
of such Second Fiduciary, and if he or she abstained from participation 
in (i) the choice of the Plan's investment manager/advisor, (ii) the 
approval of any purchase or sale by the Plan of shares of the Funds, 
and (iii) the approval of any fees charged to or paid by the Plan, in 
connection with any of the transactions described in Sections I above, 
then Section II(g)(2) above shall not apply.
    (h) The term ``Secondary Service'' means a service, other than an 
investment management, investment advisory, or similar service, which 
was provided by Keystone to the Funds involved in the subject 
transaction, including but not limited to custodial, accounting, 
administrative, brokerage or any other service.
    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 November 25, 1998 at 63 
FR 65249.
    Effective Date: This exemption is effective as of December 2, 1996, 
February 3, 1997 and July 1, 1997, for transactions described in 
Section I.

    For Further Information Contact: Ms. Janet L. Schmidt of the 
Department, telephone (202) 219-8883. (This is not a toll-free number.)

Bankers Trust Company (BTC) Located in New York, New York

[Prohibited Transaction Exemption 99-08; Exemption Application Nos. D-
10592 through D-10594]

Exemption

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to 
(1) the proposed granting to BTC by certain employee benefit plans (the 
Plans) investing in Hometown America L.L.C. (the LLC) of security 
interests in the capital commitments of the Plans to the LLC, where BTC 
is the representative of certain lenders (the Lenders) that will fund a 
so-called ``credit facility'' providing loans to the LLC, and the 
Lenders are parties in interest with respect to the Plans; and (2) the 
proposed agreements by the Plans to honor capital calls made to the 
Plans by BTC, in lieu of the LLC's sole managing member, in connection 
with the Plan's capital commitments to the LLC where such capital calls 
relate to the security interests in the capital commitments previously 
granted to BTC; provided that (a) the proposed grants and agreements 
are on terms no less favorable to the Plans than those which the Plans 
could obtain in arm's-length transactions with unrelated parties; (b) 
the decisions on behalf of each Plan to invest in the LLC and to 
execute such grants and agreements in favor of BTC are made by a 
fiduciary which is not included among, and is independent of and 
unaffiliated with, the Lenders and BTC; and (c) with respect to Plans 
that may invest in the LLC in the future, such Plans will have assets 
of not less than $100 million, and not more than 5% of the assets of 
such Plan will be invested in the LLC.
    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 November 25, 1998 at 63 
FR 65254.
    Notice to Interested Persons: The applicant represents that it was 
unable to comply with the notice to interested persons requirement 
within the time frame stated in its application. However, the applicant 
represents that it notified all interested persons, in the manner 
agreed upon between the applicant and the Department, by December 18, 
1998. Interested persons were notified that they had until January 17, 
1999 to comment on the proposed exemption.
    Written Comments: The only comment letter received by the 
Department was filed by the applicant to clarify three items contained 
in the Summary of Facts and Representations in the notice of proposed 
exemption (the Summary).
    First, the applicant notes that Representation 9 of the Summary 
correctly states that some of the Lenders may be parties in interest 
with respect to some of the Plans that invest in the LLC by virtue of 
providing fiduciary services to such Plans. However, the applicant 
wishes to also note that the Lenders may provide services other than 
fiduciary services to such Plans.
    Second, the applicant notes that Representation 9 of the Summary 
also contains a reference to William M. Stephens (Mr. Stephens), who 
was the Chief Investment Officer of Ameritech Corporation (Ameritech) 
at the time of the application. However, the applicant states that Mr. 
Stephens is no longer the Chief Investment Officer of Ameritech. Thus, 
the applicant wishes to clarify that the use of the word ``currently'' 
in referring to Mr. Stephens acting in that capacity is no longer 
correct.
    Finally, in Representation 12 of the Summary, BTC represents that 
the only direct relationship between any of the Members of the LLC and 
any of the Lenders to the LLC is the execution of the Estoppel. The 
Estoppel, as discussed earlier in the Summary, is an

[[Page 7670]]

acknowledgment by each Member that the LLC and the Manager have pledged 
and assigned to BTC, for the benefit of each Lender, all of their 
rights under the LLC Agreement relating to capital commitments and 
capital calls of such Members. In this regard, the applicant wishes to 
clarify that this absence of any direct relationship between the 
Members and the Lenders is also true at the time of any investment by a 
Plan in the LLC.
    Accordingly, after consideration of the entire record, including 
the applicant's comments, the Department has determined to grant the 
exemption as proposed.
    For Further Information Contact: Gary H. Lefkowitz of the 
Department, telephone (202) 219-8881. (This is not a toll-free number.)

Bankers Trust Company (Bankers Trust) Located in New York, New York

[Prohibited Transaction Exemption 99-09; Application Number D-10644]

Exemption

Section I
    The restrictions of section 406(a)(1)(A) through (D) and section 
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: (1) The sale 
(the Sale) of fractional amounts of certain fixed-income instruments 
(Fractional Amounts) to Bankers Trust and its affiliates by plans for 
which Bankers Trust or its affiliates provide fiduciary or other 
services (Client Plans), as well as employee benefit plans established 
and maintained by Bankers Trust or its affiliates (BT Plans) 
(collectively, the Plans); or (2) as an alternative to the Sale of the 
Fractional Amounts (the Alternative), the receipt by the Plans from 
Bankers Trust of cash equal to the amount that Bankers Trust or its 
affiliates receive from the issuer of the fixed-income instrument in 
lieu of the Fractional Amount, exclusive of transaction costs, plus 
accrued interest, provided that the following conditions are met:
    (a) Each Sale or Alternative involves a one time transaction for 
cash;
    (b) The terms of each Sale or Alternative are at least as favorable 
to the Plan as those terms which would be available in an arm's-length 
transaction with an unrelated party;
    (c)(1) Under a Sale, the Plans receive an amount in cash which is 
not less than the par value for each of the Fractional Amounts; or (2) 
under the Alternative, the Plans receive cash equal to the amount 
received by Bankers Trust from the issuer of the fixed-income security 
in lieu of the Fractional Amount, exclusive of transaction costs, plus 
accrued interest;
    (d) In the case of the single Client Plans,
    (1) Each Sale or Alternative is subject to the prior approval of an 
independent plan fiduciary;
    (2) The independent fiduciary of each Plan is furnished written 
notice at least 60 days prior to the proposed Sale or Alternative 
transaction, containing information relevant to the independent 
fiduciary's determination whether to approve the Sale or Alternative 
transaction. The notice will inform the independent fiduciary that 
failure to respond within 45 days of receipt of the notice will 
constitute authorization of Bankers Trust to engage in the transaction. 
If the fixed-income instruments are not redenominated within a year of 
provision of this notice, additional notice will be delivered to the 
independent fiduciaries each year notifying them of their right to not 
participate in this program;
    (e) In the case of the Client Plans participating in collective 
funds to which Bankers Trust serves as trustee or investment manager,
    (1) Each Sale or Alternative transaction engaged in by the 
collective fund is subject to the prior approval of each independent 
plan fiduciary of participating Plans in the fund;
    (2) The independent fiduciary of each Plan is furnished written 
notice at least 60 days prior to the proposed Sale or Alternative 
transaction, containing information relevant to the independent 
fiduciary's determination whether to approve the Sale or Alternative 
transaction or withdraw from the collective fund prior to the Sale or 
Alternative. The notice will inform the independent fiduciary that 
failure to respond within 45 days of receipt of the notice will 
constitute authorization of the collective fund for which Bankers Trust 
serves as trustee or investment manager to engage in the transaction. 
If the fixed-income instruments are not redenominated within a year of 
provision of this notice, additional notice will be delivered to the 
independent fiduciaries each year notifying them of their right to 
withdraw from the collective fund;
    (f) In the case of the Plans, Bankers Trust must engage in the Sale 
or Alternative within 30 days of the date that the Fractional Amounts 
or the cash received by Bankers Trust from the issuers of the fixed-
income security in lieu of the Fractional Amounts are received from the 
issuer;
    (g) The Plans do not incur any commissions or other expenses 
relating to the Sales or Alternatives; and
    (h) (1) Bankers Trust or an affiliate maintains or causes to be 
maintained within the United States, for a period of six years from the 
date of such transaction, the records necessary to enable the persons 
described in this section to determine whether the conditions of this 
exemption have been met; except that a party in interest with respect 
to an employee benefit plan, other than Bankers Trust or its 
affiliates, 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 Bankers Trust or its affiliates, 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 (a) the Department, (b) the Internal 
Revenue Service, (c) plan participants and beneficiaries, (d) any 
employer of plan participants and beneficiaries, and (e) any employee 
organization whose members are covered by such plan; except that none 
of the persons described in (c) through (e) of this subsection shall be 
authorized to examine trade secrets of Bankers Trust or its affiliates 
or any commercial or financial information which is privileged or 
confidential.
Section II. Definitions
    (a) The term ``affiliate'' of Bankers Trust means any other bank or 
similar financial institution directly or indirectly controlling, 
controlled by, or under common control with Bankers Trust.
    (b) The term ``Euro'' means the single European currency to be 
introduced on January 1, 1999 in eleven Member States of the European 
Union.<SUP>4</SUP>
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    \4\ For purposes of reference, the Euro is slated to have a 
conversion rate of 1 Euro equals 1 European Currency Unit (ECU). The 
ECU is a basket of 12 European currencies that is frequently used 
for inter-governmental and market transactions. Currently, the ECU 
is worth less than one U.S. dollar.
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    (c) The term ``Fractional Amount'' means, with respect to any 
fixed-income instrument, an amount less than one Euro.
    (d) The term ``independent plan fiduciary'' means a plan fiduciary

[[Page 7671]]

independent of Bankers Trust and any of its affiliates.
    (e) The term ``par value'' means the face value of the fixed-income 
instrument.
    (f) The term ``Plan'' includes all employee benefit plans to which 
Bankers Trust or an affiliate acts as a service provider, including a 
fiduciary, and all plans established and maintained by Bankers Trust 
and its affiliates, which have net assets of at least $25,000,000.

    Effective Date: This exemption is effective for the period 
beginning on January 1, 1999 and ending three years from the date on 
which each country joining the European Economic and Monetary Union 
converts to the Euro.
    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 21, 1998, at 63 
FR 56224.
    Written Comments and Hearing Requests: The Department received one 
written comment from the applicant with respect to the proposed 
exemption. In the letter, the applicant raised several concerns 
regarding the proposed exemption.
    Bankers Trust represents that it has concerns regarding paragraph 
(f) of Section I of the proposed exemption, which would not permit 
Bankers Trust or its affiliates to serve as investment manager or 
trustee with investment discretion with respect to assets involved in 
the transaction. Bankers Trust believes that such a condition provides 
no additional safeguards for Plans both advised and trusteed by Bankers 
Trust. In fact, Bankers Trust states that it harms these Plans because 
they will be forced to sell their fractional shares in the market, 
thereby subjecting them to potential market discounts and transaction 
costs. The applicant represents that the condition will lead to the 
anomalous result that Plans trusteed by Bankers Trust but advised by 
others will be ``made whole'' for fractional shares, while Plans both 
advised and trusteed by Bankers Trust, to whom arguably an even greater 
duty is owed, will be the only Plans suffering adverse consequences in 
the market associated with the fractional shares resulting from 
conversion to the Euro. The Department agrees with the foregoing and 
has decided to delete this condition from the grant of the exemption.
    In addition, Bankers Trust clarified the procedures for opting out 
of the transaction by Plans participating in collective funds sponsored 
by Bankers Trust. Bankers Trust states that if there is such an 
objection by a Plan participating in a collective fund, the Plan will 
be given the opportunity to withdraw from the collective fund prior to 
the Sale or Alternative. Following notice of the prospective Sale or 
Alternative by the fund, Plan fiduciaries which do not object within 45 
days of such notice will be deemed to have approved the transaction. 
Bankers Trust states that it has already provided notice of the 
transaction to all of its trust, collective trust, and managed accounts 
with notice of the Sale or Alternative and a copy of the proposed 
exemption. In this regard, the Department has modified the language of 
paragraph (d) of the proposal and added a new paragraph (e) to provide 
for transactional approval by independent fiduciaries of single Client 
Plans and Client Plans invested in collective funds. Further, paragraph 
(e) as it appeared in the proposed exemption has been redesignated as 
paragraph (f) in the grant.
    Finally, Bankers Trust alerted the Department to two developments 
that have occurred in the markets participating in Euro since the 
proposed exemption appeared in the Federal Register. First, the 
applicant originally believed that all of the markets participating in 
Euro would move to a Euro-only environment beginning on January 1, 
1999. While that continues to be true of nine of the eleven countries 
converting to Euro, Ireland will permit legacy currency or Euro 
currency instructions until January 8, 1999, and the Netherlands will 
permit legacy currency or Euro currency instructions throughout the 
entire three-year transition period. Second, France and the Netherlands 
have decided to use a variation on the redenomination process described 
in the proposal. Instead of issuing fractional shares, France and the 
Netherlands have directed that financial instruments will be 
redenominated to whole Euros, with the value of the fractional share 
compensated with cash. Because it appears that the cost of transferring 
the cash value of the fractional share from a subcustodian to a Plan's 
account will exceed the value of that amount, Bankers Trust states that 
it will credit client accounts with the conversion price of the 
Fractional Amount, plus accrued interest exclusive of transaction 
costs, as a service to its clients. In addition, Bankers Trust states 
that it will credit the value paid by the issuer, regardless of whether 
it actually receives that amount because of transaction costs, to the 
extent that any issuers in the future specify a different method for 
dealing with fractional shares. In this regard, the Department is 
modifying Section I of the proposed exemption, which proposed relief 
for the Sale of the Fractional Amounts by Client Plans and BT Plans to 
Bankers Trust or its affiliates to include an alternative transaction 
(the Alternative). The Alternative transaction will be the receipt by 
the Plans from Bankers Trust of cash amounts that Bankers Trust 
receives from the issuer of the fixed-income instrument from which the 
fractional amount is derived, exclusive of transaction costs, plus 
accrued interest. Further, the Department is modifying paragraph (c) of 
Section I as it appeared in the proposed exemption to state as follows:
    (c) (1) Under a Sale, the Plans receive an amount in cash which is 
not less than the par value for each of the Fractional Amounts; or (2) 
under the Alternative, the Plans receive cash equal to the amount 
received by Bankers Trust from the issuer of the fixed-income security 
in lieu of the Fractional Amount, exclusive of transaction costs, plus 
accrued interest.
    The Department received no other written comments, nor any requests 
for a hearing. Accordingly, the Department has determined to grant the 
exemption as modified.

    For Further Information Contact: Contact James Scott Frazier of the 
Department, phone number (202) 219-8881 (this is not a toll-free 
number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the

[[Page 7672]]

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 9th day of February, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-3563 Filed 2-12-99; 8:45 am]
BILLING CODE 4510-29-P