Proposed Exemptions; NatWest Securities Corporations

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10464 et al.]

Proposed Exemptions; NatWest Securities Corporations

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and requests for

a hearing should state: (1) The name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW., Washington, DC

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

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 requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

NatWest Securities Corporation, NatWest Securities Limited, Located in

New York, New York

[Application Nos. D-10464, D-10465]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

A. Effective May 22, 1997, the restrictions of section 406(a)(1)

(A) through (D) of the Employee Retirement Income Security Act of 1974

(the Act) and the taxes imposed by section 4975 (a) and (b) of the

Internal Revenue Code of 1986 (the Code), by reason of section 4975

(c)(1) (A) through (D) of the Code, shall not apply to any purchase or

sale of a security between an employee benefit plan and a broker-dealer

affiliated with NatWest Securities Corporation and subject to British

law (NatWest/UK Affiliate), if the following conditions, and the

conditions of Section II, are satisfied:

(1) The NatWest/UK Affiliate customarily purchases and sells

securities for its own account in the ordinary course of its business

as a broker-dealer.

(2) Such transaction is on terms at least as favorable to the plan

as those which the plan could obtain in an arm's length transaction

with an unrelated party.

(3) Neither the NatWest/UK Affiliate nor an affiliate thereof has

discretionary authority or control with respect to the investment of

the plan assets involved in the transaction, or renders investment

advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to

those assets, and the NatWest/UK Affiliate is a party in interest or

disqualified person with respect to the plan assets involved in the

transaction solely by reason of section 3(14)(B) of the Act or section

4975(e)(2)(B) of the Code, or by reason of a relationship to a person

described in such sections. For purposes of this paragraph, the

NatWest/UK Affiliate shall not be deemed to be a fiduciary with respect

to a plan solely by reason of providing securities custodial services

for a plan.

B. Effective May 22, 1997, the restrictions of section 406(a)(1)

(A) through (D) of the Act and the taxes imposed by section 4975 (a)

and (b) of the Code, by reason of section 4975(c)(1) (A) through (D) of

the Code, shall not apply to the lending of securities that are assets

of an employee benefit plan to an NatWest/UK Affiliate if the following

conditions, and the conditions of Section II, are satisfied:

(1) Neither the NatWest/UK Affiliate (the Borrower) nor an

affiliate of the Borrower has discretionary authority or control with

respect to the investment of the plan assets involved in the

transaction, or renders investment advice (within the meaning of 29 CFR

[[Page 47061]]

2510.3-21(c)) with respect to those assets;

(2) The plan receives from the Borrower, either by physical

delivery or by book entry in a securities depository located in the

United States, by the close of business on the day on which the

securities lent are delivered to the Borrower, collateral consisting of

U.S. currency, securities issued or guaranteed by the United States

Government or its agencies or instrumentalities, or irrevocable United

States bank letters of credit issued by a person other than the

Borrower or an affiliate thereof, or any combination thereof, having,

as of the close of business on the preceding business day, a market

value (or, in the case of letters of credit, a stated amount) equal to

not less than 100 percent of the then market value of the securities

lent. The collateral referred to in this Section I(B)(2) must be held

in the United States;

(3) Prior to the making of any such loan, the Borrower shall have

furnished the following items to the fiduciary for the plan who is

making decisions on behalf of the plan with respect to the lending of

securities (the Lending Fiduciary): (1) The most recent available

audited statement of the Borrower's financial condition, (2) the most

recent available unaudited statement of the Borrower's financial

condition (if more recent than such audited stated), and (3) a

representation that, at the time the loan is negotiated, there has been

no material adverse change in the Borrower's financial condition since

the date of the most recent financial statement furnished to the plan

that has not been disclosed to the Lending Fiduciary. Such

representation may be made by the Borrower's agreement that each such

loan shall constitute a representation by the Borrower that there has

been no such material adverse change;

(4) The loan is made pursuant to a written loan agreement, the

terms of which are at least as favorable to the plan as those which the

plan could obtain in an arm's-length transaction with an unrelated

party. Such agreement may be in the form of a master agreement covering

a series of securities-lending transactions;

(5) The plan (1) receives a reasonable fee that is related to the

value of the borrowed securities and the duration of the loan, or (2)

has the opportunity to derive compensation through the investment of

cash collateral. Where the plan has that opportunity, the plan may pay

a loan rebate or similar fee to the Borrower, if such fee is not

greater than the plan would pay an unrelated party in an arm's-length

transaction;

(6) The plan receives the equivalent of all distributions made to

holders of the borrowed securities during the term of the loan,

including, but not limited to, cash dividends, interest payments,

shares of stock as a result of stock splits and rights to purchase

additional securities;

(7) If the market value of the collateral on the close of trading

on a business day is less than 100 percent of the market value of the

borrowed securities at the close of trading on that day, the Borrower

shall deliver, by the close of business on the following business day,

an additional amount of collateral (as described in paragraph (2)) the

market value of which, together with the market value of all previously

delivered collateral, equals at least 100 percent of the market value

of all the borrowed securities as of such preceding day.

Notwithstanding the foregoing, part of the collateral may be returned

to the Borrower if the market value of the collateral exceeds 100

percent of the market value of the borrowed securities, as long as the

market value of the remaining collateral equals at least 100 percent of

the market value of the borrowed securities;

(8) The loan may be terminated by the plan at any time, whereupon

the Borrower shall deliver certificates for securities identical to the

borrowed securities (or the equivalent thereof in the event of

reorganization, recapitalization or merger of the issuer of the

borrowed securities) to the plan within (1) the customary delivery

period for such securities, (2) three business days, or (3) the time

negotiated for such delivery by the plan and the Borrower, whichever is

lesser; and

(9) In the event the loan is terminated and the Borrower fails to

return the borrowed securities or the equivalent thereof within the

time described in paragraph (8) above, then (i) the plan may, under the

terms of the loan agreement, purchase securities identical to the

borrowed securities (or their equivalent as described above) and may

apply the collateral to the payment of the purchase price, any other

obligations of the Borrower under the agreement, and any expenses

associated with the sale and/or purchase, and (ii) the Borrower is

obligated, under the terms of the loan agreement, to pay, and does pay

to the plan, the amount of any remaining obligations and expenses not

covered by the collateral plus interest at a reasonable rate.

Notwithstanding the foregoing, the Borrower may, in the event the

Borrower fails to return borrowed securities as described above,

replace non-cash collateral with an amount of cash not less than the

then current market value of the collateral, provided such replacement

is approved by the Lending Fiduciary.

(10) If the Borrower fails to comply with any condition of this

exemption, in the course of engaging in a securities-lending

transactions, the plan fiduciary who caused the plan to engage in such

transaction shall not be deemed to have caused the plan to engage in a

transaction prohibited by section 406(a)(1) (A) through (D) of the Act

solely by reason of the Borrower's failure to comply with the

conditions of the exemption.

C. Effective May 22, 1997, the restrictions of sections 406(a)(1)

(A) through (D) and 406(b)(2) of the Act and the taxes imposed by

section 4975 (a) and (b) of the Code shall not apply to any extension

of credit to an employee benefit plan by an NatWest/UK Affiliate to

permit the settlement of securities transactions or in connection with

the writing of options contracts provided that the following conditions

are met:

(a) The NatWest/UK Affiliate is not a fiduciary with respect to any

assets of such plan, unless no interest or other consideration is

received by such fiduciary or any affiliate thereof in connection with

such extension of credit; and

(b) Such extension of credit would be lawful under the Securities

Exchange Act of 1934 and any rules or regulations thereunder if such

act, rules or regulations were applicable.

Section II--General Conditions

A. The NatWest/UK Affiliate is registered as a broker-dealer with

the Securities and Futures Authority of the United Kingdom (the S.F.A.)

B. The NatWest/UK Affiliate is in compliance with all requirements

of Rule 15a-6 (17 CFR 240.15a-6) under the Securities and Exchange Act

of 1934, which provides for foreign broker-dealers a limited exemption

from U.S. registration requirements;

C. Prior to the transaction, the NatWest/UK Affiliate enters into a

written agreement with the plan in which the NatWest/UK Affiliate

consents to the jurisdiction of the courts of the United States with

respect to the transactions covered by this exemption;

D. (1) The NatWest/UK Affiliate maintains or causes to be

maintained within the United States for a period of six years from the

date of such transaction such records as are necessary to enable the

persons described in this section to determine whether the conditions

of this exemption have been met; except that a

[[Page 47062]]

party in interest with respect to an employee benefit plan, other than

the NatWest/UK Affiliate, shall not be subject to a civil penalty under

section 502(i) of the Act or the taxes imposed by section 4975(a) or

(b) of the Code, if such records are not maintained, or are not

available for examination as required by this section, and a prohibited

transaction will not be deemed to have occurred if, due to

circumstances beyond the control of the NatWest/UK Affiliate, such

records are lost or destroyed prior to the end of such six year period;

(2) The records referred to in subsection (1) above are

unconditionally available for examination during normal business hours

by duly authorized employees of (a) the Department of Labor, (b) the

Internal Revenue Service, (c) plan participants and beneficiaries, (d)

any employer of plan participants and beneficiaries, and (e) any

employee organization any of 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 NatWest

Securities Corporation or the NatWest/UK Affiliate or any commercial or

financial information which is privileged or confidential.

III--Definitions

Affiliate of a person shall include: (i) Any person directly or

indirectly, through one or more intermediaries, controlling, controlled

by, or under common control with such other person; (ii) any officer,

director, or partner, employee or relative (as defined in section 3(15)

of the Act) of such other person; and (iii) any corporation or

partnership of which such other person is an officer, director or

partner. For purposes of this definition, the term ``control'' means

the power to exercise a controlling influence over the management or

policies of a person other than an individual.

Security shall include equities, fixed income securities, options

on equity and on fixed income securities, government obligations, and

any other instrument that constitutes a security under U.S. securities

laws. The term ``security'' does not include swap agreements or other

notional principal contracts.

Summary of Facts and Representations

1. NatWest Securities Corporation (NatWest) is a securities firm

operating primarily in the United States, with additional activities in

the major markets worldwide. It engages primarily in securities

brokerage activities on an agency basis. Clients include major

corporations, pension funds, investment funds including mutual funds,

and financial institutions.

2. NatWest has foreign affiliates world wide who are in the

business of trading securities, including a broker-dealer affiliate in

London, England (the NatWest/UK Affiliate), currently NatWest

Securities Limited. NatWest represents that in the ordinary course of

their business as broker-dealers, these foreign affiliates customarily

operate as traders in dealers markets wherein the broker-dealer

purchases and sells securities for its own account and engages in

purchases and sales of securities with its clients, and that such

trades are referred to as principal transactions. NatWest states that

in issuing Prohibited Transaction Class Exemption 75-1 (PTCE 75-1, 40

FR 50845, October 31, 1975) the Department has recognized the functions

of registered broker-dealers in principal transactions on behalf of

clients which are employee benefit plans covered by the Act. Part II of

PTCE 75-1 provides exemptive relief from section 406(a) of the Act for

principal transactions between plans and broker-dealers which are

registered under the Securities Exchange Act of 1934, provided all

requirements stated in Part II are satisfied. NatWest represents that,

like the U.S. dealer markets, international equity and debt markets,

including the options markets, are no less dependent on a willingness

of dealers to trade as principals. In the absence of an exemption for

principal transactions, such as PTCE 75-1, those responsible for

trading activities on behalf of plan investors would be prevented from

engaging in transactions with those broker-dealers and banks that

provide the markets for the securities and are most capable of handling

such transactions.

3. NatWest represents that over the past decade, plans have

increasingly invested in foreign equity and debt securities, including

foreign government securities. NatWest states that plans seeking to

enter into such investments may wish to increase the number of trading

partners available to them by trading with foreign broker-dealers such

as the NatWest/UK Affiliate. However, where NatWest provides services

to such plans which are covered by the Act, principal transactions with

the NatWest/UK Affiliate would be prohibited by the Act. The exemptive

relief afforded U.S. broker-dealers by PTCE 75-1 would not be available

with respect to the NatWest/UK Affiliate because that class exemption

is limited to broker-dealers registered with the U.S. Securities and

Exchange Commission (S.E.C.) under the Securities Exchange Act of 1934

(the 1934 Act). NatWest represents that its NatWest/UK Affiliate is not

so registered but, instead, is governed by the rules, regulations and

registration requirements of the Securities and Futures Authority of

the United Kingdom (the S.F.A.). Furthermore, NatWest represents that

Rule 15(a)-6 of the 1934 Act offers foreign broker-dealers limited

exemption from the S.E.C. registration requirements pursuant to

provisions with which the NatWest/UK Affiliate is able to comply.

However, NatWest states that because of the S.E.C. registration

requirement of PTCE 75-1, the NatWest/UK Affiliate is prevented from

engaging in principal transactions with plans with respect to which

NatWest is a party in interest, even though such affiliate is

registered with the S.F.A., experienced in the markets, and able to

satisfy the Rule 15(a)-6 requirements for S.E.C. registration

exemption. Accordingly, NatWest is requesting an individual exemption

to permit its NatWest/UK Affiliate to engage in principal transactions

with plans under the terms and conditions set forth herein, which

NatWest represents are equivalent to those set forth in PTCE 75-1, Part

II. \1\

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\1\ The Department notes that the proposed principal

transactions are subject to the fiduciary responsibility

requirements of part 4, subtitle B, title I of the Act. Section

404(a) of the Act requires, among other things, that a fiduciary of

a plan act prudently, solely in the interest of the plan's

participants and beneficiaries, and for the exclusive purpose of

providing benefits to participants and beneficiaries when making

investment decisions on behalf of a plan.

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4. The proposed exemption will be applicable only to transactions

affected by an NatWest/UK Affiliate which is registered as a broker-

dealer with the S.F.A. and in compliance with Rule 15(a)-6. NatWest

represents that the role of a broker-dealer in a principal transaction

in the United Kingdom is substantially identical to that of a broker-

dealer in a principal transaction in the United States. NatWest further

represents that registration of a broker-dealer with the S.F.A. is

equivalent to registration of a broker-dealer with the S.E.C. under the

1934 Act. NatWest maintains that the S.F.A. has promulgated rules for

broker-dealers which are equivalent to S.E.C. rules, relating to

registration requirements, minimum capitalization, reporting

requirements, periodic examinations, fund segregation, client

protection, and enforcement. NatWest represents that the rules and

regulations set forth by the S.F.A. and the S.E.C. share a common

objective: The protection of the investor by the regulation of

securities markets.

[[Page 47063]]

NatWest explains that under S.F.A. rules, persons who manage

investments or give advice with respect to investments must be

registered as a ``registered representative''. If a person is not a

registered representative and, as part of his duties, makes commitments

in market dealings or transactions, that persons must be registered as

a ``registered trader''. NatWest represents that the S.F.A. rules

require each firm which employs registered representatives or

registered traders to have positive tangible net worth and be able to

meet its obligations as they fall due, and that the S.F.A. rules set

forth comprehensive financial resource and reporting/disclosure rules

regarding capital adequacy. In addition to demonstration of capital

adequacy, NatWest states that the S.F.A. rules impose reporting/

disclosure requirements on broker-dealers with respect to risk

management, internal controls, and all records relating to a

counterparty, and that all records must be produced at the request of

the S.F.A. at any time. NatWest states that S.F.A.'s registration

requirements for broker-dealers are backed up by potential fines and

penalties, and rules which establish a comprehensive disciplinary

system.

5. NatWest represents that in addition to the protections which are

afforded by registration with S.F.A., compliance with the requirements

of Rule 15a-6 (17 CFR 240.15a-6) under the 1934 Act will offer

additional protections in lieu of registration with the S.E.C. NatWest

states that Rule 15a-6 provides an exemption from U.S. broker-dealer

registration for a foreign broker-dealer that induces or attempts to

induce the purchase or sale of any security (including over-the-counter

equity and debt options) by a ``U.S. institutional investor'' or a

``U.S. major institutional investor'', provided that the foreign broker

dealer, among other things, enters into these transactions through a

U.S. registered broker-dealer intermediary. The term ``U.S.

institutional investor'', as defined in Rule 15a-6(b)(7), includes an

employee benefit plan within the meaning of the Employee Retirement

Income Security Act of 1974 (the Act) if (a) the investment decision is

made by a plan fiduciary, as defined in section 3(21) of the Act, which

is either a bank, savings and loan association, insurance company or

registered investment advisor, or (b) the employee benefit plan has

total assets in excess of $5 million, or (c) the employee benefit plan

is a self-directed plan with investment decisions made solely by

persons that are accredited investors as defined in Rule 501(a)(1) of

Regulation D of the Securities Act of 1933, as amended. The term U.S.

major institutional investor is defined as a person that is a U.S.

institutional investor that has total assets in excess of $100 million.

NatWest represents that the intermediation of the U.S. registered

broker-dealer imposes upon the foreign broker-dealer the requirement

that the securities transaction be effected in accordance with a number

of U.S. securities laws and regulations applicable to U.S. registered

broker-dealers.

NatWest represents that under Rule 15a-6, a foreign broker-dealer

that induces or attempts to induce the purchase or sale of any security

by a U.S. institutional or major institutional investor in accordance

with Rule 15a-6 must, among other things:

(a) Consent to service of process for any civil action brought by,

or proceeding before, the S.E.C. or any self-regulatory organization

(b) Provide the S.E.C. with any information or documents within its

possession, custody or control, any testimony of any such foreign

associated persons, and any assistance in taking the evidence of other

persons, wherever located, that the S.E.C. requests and that relates to

transactions effected pursuant to the Rule

(c) Rely on the U.S. registered broker-dealer through which the

transactions with the U.S. institutional and major institutional

investors are effected to (among other things):

(1) Effect the transactions, other than negotiating their terms

(2) Issue all required confirmations and statements

(3) As between the foreign broker-dealer and the U.S. registered

broker-dealer, extend or arrange for the extension of credit in

connection with the transactions

(4) Maintain required books and records relating to the

transactions, including those required by Rules 17a-3 (Records to be

Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by

Certain Exchange Members, Brokers and Dealers) of the 1934 Act

(5) Receive, deliver, and safeguard funds and securities in

connection with the transactions on behalf of the U.S. institutional

investor or U.S. major institutional investor in compliance with Rule

15c3-3 of the 1934 Act (Customer Protection--Reserves and Custody of

Securities); and

(6) Participate in all oral communications (e.g., telephone calls)

between the foreign associated person and the U.S. institutional

investor (not the U.S. major institutional investor), and accompany the

foreign associated person on all visits with both U.S. institutional

and major institutional investors. By virtue of this participation, the

U.S. registered broker-dealer would become responsible for the content

of all these communications.

6. NatWest represents that a normal part of the execution of

securities transactions by broker-dealers on behalf of customers,

including employee benefit plans, is the extension of credit to

customers to permit the settlement of transactions in the customary

settlement period, and that such extensions of credit are also

customary activities of broker-dealers in connection with the writing

of option contracts. NatWest notes that exemptive relief for such

transactions is provided under Part V of PTCE 75-1. However, the

exemptive relief under Part V of PTCE 75-1, like that under Part II, is

available only with respect to broker-dealers which are registered with

the S.E.C. under the 1934 Act. Accordingly, NatWest requests that the

exemption include relief for extensions of credit by the NatWest/UK

affiliate in the ordinary course of the purchase or sale of securities,

regardless of whether they are effected on an agency or a principal

basis. The proposed exemption provides relief for extensions of credit

by the NatWest/UK Affiliate to a plan to permit the settlement of

securities transactions or in connection with the writing of options

contracts, provided that the NatWest/UK Affiliate is not a fiduciary

with respect to any assets of the plan, unless no interest or other

consideration is received by the NatWest/UK Affiliate in connection

with such extension of credit. The proposed exemption also requires

that the extension of credit would be lawful under the 1934 Act and any

rules or regulations thereunder if such act, rules, or regulations were

applicable.

7. In addition to exemptive relief for principal transactions and

extensions of credit in connection with the purchase or sale of

securities, NatWest is also requesting exemptive relief for the lending

of securities, equivalent to that provided under the terms and

conditions of Prohibited Transaction Class Exemption 81-6 (PTCE 81-6,

46 FR 7527, January 23, 1981, amended at 52 FR 18754, May 19, 1987), a

class exemption to permit certain loans of securities by employee

benefit plans. NatWest represents that in PTCE 81-6 the Department has

recognized that securities lending represents a low-risk means of

enhancing the investment return of plans with respect to securities

that would otherwise be idle. NatWest

[[Page 47064]]

represents that the conditions of Section I(B) of the proposed

exemption will subject the NatWest/UK Affiliate to all of the

conditions imposed on broker-dealers under PTCE 81-6, other than

registration under the 1934 Act. NatWest notes that such conditions

include requirements relating to daily marking to market, setting

collateral at 100 percent of the market value of the securities, the

rules for termination of the loan, and return of the borrowed

securities. In addition, NatWest notes that the collateral will be in

U.S. dollars and will be held in the United States.

8. In summary, the applicant represents that the proposed

transactions satisfy the criteria of section 408(a) of the Act for the

following reasons: (1) With respect to principal transactions affected

by the NatWest/UK Affiliate , the exemption will enable plans to

realize the same benefits of efficiency and convenience which derive

from principal transactions executed pursuant to Part II of PTCE 75-1

by broker-dealers registered in the United States; (2) With respect to

extensions of credit by the NatWest/UK Affiliate in connection with

purchases or sales of securities, the exemption will enable the

NatWest/UK to extend credit in the ordinary course of business to

affect the transactions within the customary settlement period or in

connection with the writing of options contracts; (3) With respect to

securities lending transactions affected by the NatWest/UK Affiliate,

the exemption will enable plans to realize a low-risk return on

securities that otherwise would remain idle, as in securities lending

transactions executed pursuant to PTCE 81-6 by broker-dealers

registered in the United States; and (4) The proposed exemption

generally imposes terms and conditions upon the transactions executed

by the NatWest/UK Affiliate which are the same as those imposed on U.S.

broker-dealers under PTCE 75-1 and PTCE 81-6.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Carl M. Callaway Individual Retirement Account (IRA) Located in

Huntington, West Virginia

[Application No. D-10469]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 4975(c)(2) of the Code and in accordance with the

procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,

32847, August 10, 1990). If the exemption is granted 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 transaction involving a sale or exchange of certain

securities (the Sale) by the IRA to Carl M. Callaway and his wife,

Marianna F. Callaway, both disqualified persons with respect to the

IRA; provided the following conditions are satisfied: (a) The sale or

exchange is a one-time transaction constituting an exchange of

securities approximately equal in value and any difference in value

occurring is immediately eradicated with cash payments by either the

Callaways or the IRA, in order to equalize the value of the exchanged

assets, (b) the IRA incurs no commissions or other expenses in

connection with the transaction, (c) the transaction involves only

securities that have a fair market value on the date of the exchange

which is objectively determinable through independently and regularly

published market prices and quotations, and (d) the IRA tenders as

consideration stock valued at an amount equal to the reported closing

price of the stock on the date of the Sale and the IRA receives U.S.

Treasury notes valued at the reported closing bid on the date of the

Sale, plus the accrued interest the notes earned to the date of the

Sale.

Summary of Facts and Representations

1. The IRA is an individual retirement account as described under

408(a) of the Code. The IRA was established by Carl M. Callaway who is

the sole participant. The custodian of the assets of the IRA is

Hilliard-Lyons Inc., a registered broker/dealer headquartered in

Louisville, KY, which has an office in Huntington, WV serving the IRA.

As of June 27, 1997, the total assets of the IRA were $1,213,813, of

which 2.65 percent consists of U.S. Treasury notes and 6.14 percent are

corporate notes. There are 53.37 percent of the total assets invested

in common stocks and 19.09 percent in mutual funds and 18.66 percent of

the total assets is held in cash.

2. Mr. Callaway is semi-retired and presently taking distributions

from the IRA. Mr. Callaway desires to reduce the amount of common stock

in the IRA and increase its investments in quality corporate bonds and

U.S. Treasury securities. Mr. Callaway is concerned that the

distributions he is receiving will be adversely affected because, in

his opinion, the current holdings of the IRA lack diversification and

expose the IRA to the risk inherent in holding thinly traded stocks and

other investments that are subject to fluctuations in the stock

markets.

Mr. Callaway represents that in order to alleviate this concern,

the IRA needs to acquire fixed income investments that are recognizably

sound and publicly traded and will generate sufficient cash flows which

are able to make the distributions in a timely fashion. To accomplish

this portfolio change without the IRA incurring extensive commissions

or possible losses from the bid-ask spreads on the securities markets,

Mr. Callaway proposes the sale or exchange of certain stocks in the IRA

for U.S. Treasury notes owned individually by himself and his wife. Mr.

Callaway further represents that the proposed exchange will involve

only securities approximately equal in value and the parties to the

exchange will provide for cash payments to equalize the value of the

securities exchanged. Also Mr. Callaway represents that the value of

all investments in this transaction are determinable through regularly

published, objective, and independent market prices and quotations.

3. Mr. Callaway proposes that the IRA will exchange with Mrs.

Callaway the following shares of stock and receive the following U.S.

Treasury notes at closing market values reported on the date of the

Sale:

------------------------------------------------------------------------

Company Ticker symbol & exchange

------------------------------------------------------------------------

(a) 850 shares, Hewlett Packard......... HWP (NYSE)

(b) 4,970 shares, Horizon Bancorp....... HZWV (NASDAQ)

(c) 500 shares, IBM..................... IBM (NYSE)

(d) 575 shares, Motorola................ MOT (NYSE)

(e) 650 shares, Nokia................... NOKA (NYSE)

------------------------------------------------------------------------

U.S. Treasury Notes

(a) $25,000 U.S. Treasury note, 7\1/8\%--due 10/15/98

(b) $215,000 U.S. Treasury note, 7\1/4\%--due 08/15/04

(c) $50,000 U.S. Treasury note, 7\7/8\%--due 11/15/04

In addition Mr. Callaway proposes that the IRA will exchange with

himself the following shares of stock for the following U.S. Treasury

note:

(a) 2,000 shares, Horizon Bancorp--HZWV (NASDAQ)

(b) $50,000 U.S. Treasury note, 7\3/4\%--due 2/15/01

4. Mr. Callaway represents that the Sale would permit the custodian

of the IRA to make the proposed exchanges with the Callaways and

promptly document the transaction and publish it in the monthly

statement for the IRA. Furthermore it is represented that the

[[Page 47065]]

Sale enables the IRA diversify its portfolio. Mr. Callaway represents

that Sale will occur only with the utilization of the fair market

values of the involved securities based on the closing prices on the

date of the Sale for the stock and the bid prices for the U.S. Treasury

notes.

5. In summary, the applicant represents that the proposed

transaction satisfies the criteria contained in section 4975(c)(2) of

the Code because (a) the sale and exchange will be a one-time

transaction involving securities for which market values are readily

ascertainable; (b) the IRA will incur no commissions or other expenses

from the Sale; (c) the IRA will receive not less than the fair market

value of its securities involved in the Sale; and (d) the participant

of the IRA has determined that the proposed transaction is appropriate

for and in the best interest of his IRA and he desires that the

transaction be consummated.

Notice to Interested Persons

Because Mr. Callaway is the only participant in his IRA, it has

been determined that there is no need to distribute the notice of

proposed exemption to interested persons. Comments and requests for a

hearing are due 30 days after publication of this notice in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver 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 of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

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

(4) The proposed exemptions, if granted, will be 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 2nd day of September, 1997.

Ivan Strasfeld,

Director of Exemption Determinations Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 97-23642 Filed 9-4-97; 8:45 am]

BILLING CODE 4510-29-P