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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; The Chase Manhattan Bank (CMB), et al. [Notices] [08/25/1999]

Grant of Individual Exemptions; The Chase Manhattan Bank (CMB), et al. [08/25/1999]

[PDF Version]

Volume 64, Number 164, Page 46419-46422

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-34; Exemption Application No. D-
10694, et al.]

 
Grant of Individual Exemptions; The Chase Manhattan Bank (CMB), 
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, DC. 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.

The Chase Manhattan Bank (CMB); Located in New York, NY

[Prohibited Transaction Exemption 99-34; Exemption Application No. D-
10694]

Exemption

Section I. Covered Transactions

    The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1) 
and (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 lending of securities to 
affiliates of The Chase Manhattan Corporation (CMC), which are engaged 
in CMC's capital markets line of business (Global Capital Markets), by 
employee benefit plans (the Client Plans), including commingled 
investment funds holding Client Plan assets, for which CMC, through its 
Global Investor Services line of Business, as operated through CMB and 
its affiliates (GIS), acts as directed trustee or custodian, and for 
which CMC through its Global Securities Lending Division or any other 
similar division of CMB or a U.S. affiliate of CMC (collectively, GSL) 
acts as securities lending agent or sub-agent and (2) to the receipt of 
compensation by GSL in connection with the proposed transactions, 
provided the general conditions set forth below in Section II are met.

Section II. General Conditions

    (a) This exemption applies to loans of securities to Global Capital 
Markets, as operated through CMB in the United States (Global Capital 
Markets/U.S. or the U.S. Affiliated Borrower) and in the following 
foreign countries: the United Kingdom (Global Capital Markets/U.K.), 
Canada (Global Capital Markets/Canada), Australia (Global Capital 
Markets/Australia), Japan (Global Capital Markets/Japan)(collectively, 
the Foreign Affiliated Borrowers). Global Capital Markets will also 
include other companies or their successors which are affiliated with 
either CMB or CMC within these countries.<SUP>1</SUP>
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    \1\ Unless otherwise noted, Global Capital Markets will consist 
collectively of the above referenced entities.
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    (b) For each Client Plan, neither GIS, Global Capital Markets, GSL, 
nor any other division or affiliate of CMC has or exercises 
discretionary authority or control with respect to the investment of 
the assets of Client Plans involved in the transaction (other than with 
respect to the lending of securities designated by an independent 
fiduciary of a Client Plan as being available to lend and the 
investment of cash collateral after securities have been loaned and 
collateral received), or renders investment advice (within the meaning 
of 29 CFR 2510.3-21(c)) with respect to those assets, including 
decisions concerning a Client Plan's acquisition and disposition of 
securities available for loan.
    (c) Before a Client Plan participates in a securities lending 
program and before any loan of securities to Global Capital Markets is 
effected, a Client Plan fiduciary which is independent of Global 
Capital Markets must have--
    (1) Authorized and approved a securities lending authorization 
agreement with GSL, where GSL is acting as the securities lending 
agent;
    (2) Authorized and approved the primary securities lending 
authorization agreement with the primary lending agent where GSL is 
lending securities under a sub-agency agreement with the primary 
lending agent;<SUP>2</SUP> and
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    \2\ The Department, herein, is not providing exemptive relief 
for securities lending transactions engaged in by primary lending 
agents, other than GSL, beyond that provided pursuant to Exemption 
(PTE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754, 
May 19, 1987) and PTE 82-63 (47 FR 14804, April 6, 1982).
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    (3) Approved the general terms of the securities loan agreement 
(the Loan Agreement) between such Client Plan and Global Capital 
Markets, the specific terms of which are negotiated and entered into by 
GSL.
    (d) Each loan of securities by a Client Plan to Global Capital 
Markets is at market rates and terms which are at least as favorable to 
such Client Plan as if made at the same time and under the same 
circumstances to an unrelated party.
    (e) The Client Plan may terminate the agency or sub-agency 
arrangement at any time without penalty to such Client Plan on five 
business days notice whereupon Global Capital Markets delivers 
securities identical to the borrowed securities (or the equivalent in 
the event of reorganization, recapitalization or merger of the issuer 
of the borrowed securities) to the Client Plan within--
    (1) The customary delivery period for such securities;
    (2) Five business days; or
    (3) The time negotiated for such delivery by the Client Plan and 
Global Capital Markets, whichever is less.

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    (f) The Client Plan receives from Global Capital Markets (either by 
physical delivery or by book entry in a securities depository located 
in the United States, wire transfer or similar means) by the close of 
business on or before the day the loaned securities are delivered to 
Global Capital Markets, collateral consisting of cash, 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 U.S. bank, which is a person other than Global Capital 
Markets or an affiliate thereof, or any combination thereof, or other 
collateral permitted under PTE 81-6 (as amended from time to time or, 
alternatively, any additional or superseding class exemption that may 
be issued to cover securities lending by employee benefit plans), 
having, as of the close of business on the preceding business day, a 
market value (or, in the case of a letter of credit, a stated amount) 
initially equal to at least 102 percent of the market value of the 
loaned securities.
    (g) 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 business on that day, Global 
Capital Markets delivers additional collateral on the following day 
such that the market value of the collateral again equals 102 percent.
    (h) The Loan Agreement gives the Client Plan a continuing security 
interest in, title to, or the rights of a secured creditor with respect 
to the collateral and a lien on the collateral and GSL monitors the 
level of the collateral daily.
    (i) Before entering into a Loan Agreement, Global Capital Markets 
furnishes GSL the most recently available audited and unaudited 
statements of the financial condition of the applicable borrower within 
Global Capital Markets. Such statements are, in turn, provided by GSL 
to the Client Plan. At the time of the loan, Global Capital Markets 
gives prompt notice to the Client Plan fiduciary of any material 
adverse change in the borrower's financial condition since the date of 
the most recent financial statement furnished to the Client Plan. In 
the event of any such changes, GSL requests approval of the Client Plan 
to continue lending to Global Capital Markets before making any such 
additional loans. No new securities loans will be made until approval 
is received and each loan constitutes a representation by Global 
Capital Markets that there has been no such material adverse change.
    (j) In return for lending securities, the Client Plan either--
    (1) Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash collateral. (In the case of cash collateral, the 
Client Plan may pay a loan rebate or similar fee to Global Capital 
Markets if such fee is not greater than the fee the Client Plan would 
pay an unrelated party in a comparable arm's length transaction.)
    (k) All procedures regarding the securities lending activities 
conform to the applicable provisions of PTEs 81-6 and PTE 82-63 (as 
amended from time, or alternatively, any additional or superseding 
class exemption that may be issued to cover securities lending by 
employee benefit plans).
    (l) If Global Capital Markets defaults on the securities loan or 
enters bankruptcy, the collateral will not be available to Global 
Capital Markets or its creditors, but will be used to make the Client 
Plan whole. In this regard,
    (1) In the event a Foreign Affiliated Borrower defaults on a loan, 
CMB will liquidate the loan collateral to purchase identical securities 
for the Client Plan. If the collateral is insufficient to accomplish 
such purchase, CMB will indemnify the Client Plan for any shortfall in 
the collateral plus interest on such amount and any transaction costs 
incurred (including attorney's fees of the Client Plan for legal 
actions arising out of the default on the loans or failure to indemnify 
properly under this provision). Alternatively, if such identical 
securities are not available on the market, the GSL will pay the Client 
Plan cash equal to--
    (i) The market value of the borrowed securities as of the date they 
should have been returned to the Client Plan, plus
    (ii) All the accrued financial benefits derived from the beneficial 
ownership of such loaned securities as of such date, plus
    (iii) Interest from such date to the date of payment.
    The lending Client Plans will be indemnified in the United States 
for any loans to the Foreign Affiliated Borrowers.
    (2) In the event the U.S. Affiliated Borrower defaults on a loan, 
CMB will liquidate the loan collateral to purchase identical securities 
for the Client Plan. If the collateral is insufficient to accomplish 
such purchase, either CMB or the U.S. Affiliated Borrower will 
indemnify the Client Plan for any shortfall in the collateral plus 
interest on such amount and any transaction costs incurred (including 
attorney's fees of the Client Plan for legal actions arising out of the 
default on the loans or failure to indemnify property under this 
provision).
    (m) The Client Plan receives the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
including all interest, dividends and distributions on the loaned 
securities during the loan period.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to Global Capital Markets, copies of the notice of proposed 
exemption and the final exemption are provided to the Client Plan.
    (o) Each Client Plan receives a monthly report with respect to its 
securities lending transactions, including but not limited to the 
information described in Representation 24 of the proposed exemption, 
so that an independent fiduciary of the Client Plan may monitor the 
securities lending transactions with Global Capital Markets.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to 
Global Capital Markets; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization (i.e., the Related Client Plans), whose assets are 
commingled for investment purposes in a single master trust or any 
other entity the assets of which are ``plan assets'' under 29 CFR 
2510.3-101 (the Plan Asset Regulation), which entity is engaged in 
securities lending arrangements with Global Capital Markets, the 
foregoing $50 million requirement shall be deemed satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million; provided that if the fiduciary responsible for making the 
investment decision on behalf of such master trust or other entity is 
not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization (i.e., the Unrelated Client Plans), whose assets 
are commingled for investment purposes in a group trust or any other 
form of entity the assets of which are ``plan assets'' under the Plan 
Asset

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Regulation, which entity is engaged in securities lending arrangements 
with Global Capital Markets, the foregoing $50 million requirement is 
satisfied if such trust or other entity has aggregate assets which are 
in excess of $50 million (excluding the assets of any Client Plan with 
respect to which the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity or any member of 
the controlled group of corporations including such fiduciary is the 
employer maintaining such Plan or an employee organization whose 
members are covered by such Plan). However, the fiduciary responsible 
for making the investment decision on behalf of such group trust or 
other entity--
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million.
    (In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.)
    (q) With respect to each successive two week period, on average, at 
least 50 percent or more of the outstanding dollar value of securities 
loans negotiated on behalf of Client Plans by GSL, in the aggregate, 
will be to unrelated borrowers.
    (r) In addition to the above, all loans involving Foreign 
Affiliated Borrowers within Global Capital Markets have the following 
supplemental requirements:
    (1) Such Foreign Affiliated Borrower is registered as a bank or 
broker-dealer with--
    (i) The Financial Services Authority or the Securities and Futures 
Authority, in the case of Global Capital Markets/U.K.;
    (ii) The Office of the Superintendent of Financial Institutions 
(OSFI), or the Ontario Securities Commission and/or the Investment 
Dealers Association, in the case of Global Capital Markets/Canada;
    (iii) The Australian Prudential Regulation Authority (APRA), or the 
Australian Securities & Investments Commission and/or the Australian 
Stock Exchange Limited, in the case of Global Capital Markets/
Australia; and
    (iv) The Ministry of Finance and/or the Tokyo Stock Exchange, in 
the case of Global Capital Markets/Japan.
    (2) Such broker-dealer or bank is in compliance with all applicable 
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities 
Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-
dealers a limited exemption from United States registration 
requirements;
    (3) All collateral is maintained in United States dollars or 
dollar-denominated securities or letters of credit of U.S. banks or any 
combination thereof, or other collateral permitted under PTE 81-6 (as 
amended from time to time, or alternatively, any additional or 
superseding class exemption that may be issued to cover securities 
lending by employee benefit plans);
    (4) All collateral is held in the United States;
    (5) The situs of the Loan Agreement is maintained in the United 
States;
    (6) The lending Client Plans are indemnified by CMB in the United 
States for any transactions covered by this exemption with the Foreign 
Affiliated Borrower so that the Client Plans do not have to litigate in 
a foreign jurisdiction nor sue the Foreign Affiliated Borrower to 
realize on the indemnification; and
    (7) Prior to the transaction, each Foreign Affiliated Borrower 
enters into a written agreement with GSL on behalf of the Client Plan 
whereby the Foreign Affiliated Borrower consents to service of process 
in the United States and to the jurisdiction of the courts of the 
United States with respect to the transactions described herein.
    (s) CMB or Chase Securities Inc. (CSI) maintains, or causes to be 
maintained within the United States for a period of six years from the 
date of such transaction, in a manner that is convenient and accessible 
for audit and examination, such records as are necessary to enable the 
persons described in paragraph (t)(1) to determine whether the 
conditions of the exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of CMB or CSI, the 
records are lost or destroyed prior to the end of the six year period; 
and
    (2) No party in interest other than CMB or CSI shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (ii) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (iii) Any contributing employer to any participating Client Plan or 
any duly authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs 
(t)(1)(ii)-(t)(1)(iv) of this paragraph (t)(1) are authorized to 
examine the trade secrets of CMB, the U.S. Affiliated Borrowers, or the 
Foreign Affiliated Borrowers or commercial or financial information 
which is privileged or confidential.

III. Definitions

    For purposes of this exemption,
    (a) The terms ``CMB'' and ``CMC'' as referred to herein in Sections 
I and II, refer to The Chase Manhattan Bank and its parent, The Chase 
Manhattan Corporation.
    (b) The term ``affiliate'' means any entity now or in the future, 
directly or indirectly, controlling, controlled by, or under common 
control with CMC or its successors. (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.)
    (c) The term ``U.S. Affiliated Borrower'' means an affiliate of CMC 
that is a bank supervised by the United States or a State, or a broker-
dealer registered under the 1934 Act.
    (d) The term ``Foreign Affiliated Borrower'' means an affiliate of 
CMC that is a bank or a broker-dealer which is supervised by--
    (1) The Financial Services Authority or the Securities and Futures 
Authority in the United Kingdom;
    (2) OSFI, or the Ontario Securities Commission and/or the 
Investment Dealers Association in Canada;
    (3) APRA, or the Australian Securities & Investments Commission 
and/or the Australian Stock Exchange in Australia; and
    (4) The Ministry of Finance and/or the Tokyo Stock Exchange in 
Japan.
    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 on June 25, 1999 at 64 FR 34281.


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

H.H. Borland, Inc. Profit Sharing Plan (the Plan); Located in 
Downers Grove, IL

[Prohibited Transaction Exemption 99-35; Exemption Application No. D-
10707]

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 to the proposed sale (the Sale) of certain improved real 
property (the Property) by the Plan to Henry H. Borland III and Pat 
Borland, the Plan trustees (the Trustees) and disqualified persons with 
respect to the Plan,<SUP>3</SUP> provided the following conditions are 
met:
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    \3\ Since Mr. Borland is the sole owner of the Plan sponsor and 
the only participant in the Plan, there is no jurisdiction under 
Title I of the Act pursuant to 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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    (a) The terms and conditions of the Sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (b) The Trustees purchase the Property from the Plan for the 
greater of $200,000 or the fair market value of the Property as of the 
date of the transaction, as determined by a qualified, independent 
appraiser;
    (c) The Sale is a one-time transaction for cash; and
    (d) The Plan pays no fees or commissions in connection with 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 June 25, 1999 at 64 FR 
34292.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application 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 20th day of August, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 99-22025 Filed 8-24-99; 8:45 am]
BILLING CODE 4510-29-P