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

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 97-07; Exemption Application Nos. D-

10079 Through D-10082, et al.]

Grant of Individual Exemptions; Pikeville National Bank & Trust

Company; Trust Company of Kentucky; and First American Bank

(Collectively, the Banks), et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, D.C. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

Pikeville National Bank & Trust Company; Trust Company of Kentucky; and

First American Bank (Collectively, the Banks) Located in Pikeville and

Ashland, Kentucky

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

Through D-10082]

Exemption

The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,

shall not apply to: (1) The cash sales on December 28, 1994 and January

13, 1995, of certain collateralized mortgage obligations (CMOs) and

other mortgage-backed securities (collectively, the Securities) held by

eighty-six (86) employee benefit plans, Keogh plans and individual

retirement accounts (IRAs) for which the Banks act as trustee (the

Plans) to Pikeville National Corporation (PKVL), a party in interest

with respect to the Plans; (2) the ``makewhole'' payments made by PKVL

to the Plans on January 20, 1995, in connection with the sale of

certain Securities by the Plans on the open market on November 2, 1994;

and (3) the proposed additional ``makewhole'' and interest payments to

be made by PKVL to the Plans, as of the

[[Page 4811]]

date the exemption is granted, as a result of: (i) The additional

amounts owed to such Plans based on the amortized cost of the

Securities at the time of the transactions in situations where the

amortized cost exceeded the outstanding principal balance of the

Securities (plus a reasonable rate of interest on such amounts), and

(ii) the additional accrued but unpaid interest on the Securities which

was owed to the Plans at the time of the sale to PKVL on December 28,

1994 (plus a reasonable rate of interest on such amounts); provided

that the following conditions are met:

(a) Each sale was a one-time transaction for cash;

(b) Each Plan has received or will receive a total amount for the

Securities owned by the Plan, including the sale proceeds and

``makewhole'' payments for transactions that occurred either on the

open market or with PKVL, which is equal to the greater of: (i) The

outstanding principal balance for each Security owned by the Plan, plus

accrued but unpaid interest, at the time of the sale; (ii) the

amortized cost for each Security owned by the Plan on the date of the

sale, plus accrued but unpaid interest, as determined by the Banks; or

(iii) the fair market value of each Security owned by the Plan as

determined by the Banks from broker-dealers or pricing services

independent of the Banks at the time of the sale;

(c) With respect to the ``makewhole'' payments made by PKVL to the

Plans on January 20, 1995, the Plans receive a reasonable rate of

interest for the period from November 2, 1994 (the date of the sale of

certain Securities on the open market) until January 20, 1995 (the date

such payments were made), to the extent this amount is not already

accounted for under the additional ``makewhole'' payments which are due

for the Securities based on the amounts referred to above in Item

(3)(i);

(d) The Plans did not pay any commissions or other expenses with

respect to the transactions;

(e) The Banks, as trustee of the Plans, determined that the sale of

the Securities was in the best interests of each of the Plans and their

participants and beneficiaries at the time of the transaction;

(f) The Banks took all appropriate actions necessary to safeguard

the interests of the Plans and their participants and beneficiaries in

connection with the transactions; and

(g) Each Plan received a reasonable rate of return on the

Securities during the period of time that it held the Securities.

EFFECTIVE DATE: This exemption is effective as of December 28, 1994,

and January 13, 1995, for the sales of the Securities made to PKVL, and

as of January 20, 1995, for the ``makewhole'' payments made by PKVL in

connection with the sale of the Securities to an unrelated party on

November 2, 1994. In addition, this exemption is effective for the

additional ``makewhole'' and interest payments due to the Plans as of

the date such payments are made to the affected Plans.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption refer to

the notice of proposed exemption (the Proposal) published on November

6, 1996 at 61 FR 57462.

WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted a comment

letter on the Proposal which requested that certain modifications be

made by the Department.

First, the Banks request that the abbreviation ``PNC'', as used in

the Proposal to refer to the Pikeville National Corporation, not be

used in the final exemption. The applicant notes that the abbreviation

``PNC'' is used for identification and promotion purposes by Pittsburgh

National Corporation, a major bank holding company that was not

involved in any way with the subject transactions. To avoid unnecessary

confusion or misunderstandings by interested parties, the Banks request

that references to the Pikeville National Corporation as ``PNC'' be

changed to ``PKVL''.

In this regard, the Department has deleted references to ``PNC''

and substituted ``PKVL''.

Second, the Banks would like to clarify that there are fewer than

eighty-nine plans involved in the subject transactions, as stated in

the Proposal. The Banks represent that after the Proposal was published

it was discovered that several ``plans'' were actually subaccounts to

plans and not separate plans. Thus, the Banks state that the correct

number of ``plans'' involved is eighty-six (86).

In this regard, the Department has modified the language of the

exemption based on the applicant's clarification.

Accordingly, the Department has determined to grant the requested

exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

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

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

10108]

Exemption

Section I--Transactions

A. Effective August 25, 1995, the restrictions of section

406(a)(1)(A) through (D) of the Employee Retirement Income Security Act

of 1974 (the Act) and the taxes imposed by section 4975 (a) and (b) of

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

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

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

affiliated with Morgan Stanley & Co. and subject to British law (MSC/UK

Affiliate), if the following conditions, and the conditions of Section

II, are satisfied:

(1) The MSC/UK Affiliate customarily purchases and sells securities

for its own account in the ordinary course of its business as a broker-

dealer.

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

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

with an unrelated party.

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

discretionary authority or control with respect to the investment of

the plan assets involved in the transaction, or renders investment

advice (within the meaning of 29 C.F.R. 2510.3-21(c)) with respect to

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

disqualified person with respect to the plan assets involved in the

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

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

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

Affiliate shall not be deemed to be a fiduciary with respect to a plan

solely by reason of providing securities custodial services for a plan.

B. Effective August 25, 1995, the restrictions of section

406(a)(1)(A) through (D) of the Act and the taxes imposed by section

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

(D) of the Code, shall not apply to the lending of securities that are

assets of an employee benefit plan to an MSC/UK Affiliate if the

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

(1) Neither the MSC/UK Affiliate (the Borrower) nor an affiliate of

the Borrower has discretionary authority or control with respect to the

investment of the plan assets involved in the

[[Page 4812]]

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

C.F.R. 2510.3-21(c)) with respect to those assets;

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

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

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

securities lent are delivered to the Borrower, collateral consisting of

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

Government or its agencies or instrumentalities, or irrevocable United

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

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

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

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

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

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

in the United States;

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

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

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

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

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

recent available unaudited statement of the Borrower's financial

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

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

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

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

that has not been disclosed to the Lending Fiduciary. Such

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

loan shall constitute a representation by the Borrower that there has

been no such material adverse change;

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

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

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

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

a series of securities-lending transactions;

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

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

has the opportunity to derive compensation through the investment of

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

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

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

transaction;

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

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

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

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

additional securities;

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

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

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

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

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

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

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

of all the borrowed securities as of such preceding day.

Notwithstanding the foregoing, part of the collateral may be returned

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

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

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

the market value of the borrowed securities;

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

the Borrower shall deliver certificates for securities identical to the

borrowed securities (or the equivalent thereof in the event of

reorganization, recapitalization or merger of the issuer of the

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

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

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

lesser; and

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

return the borrowed securities or the equivalent thereof within the

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

terms of the loan agreement, purchase securities identical to the

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

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

obligations of the Borrower under the agreement, and any expenses

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

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

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

covered by the collateral plus interest at a reasonable rate.

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

Borrower fails to return borrowed securities as described above,

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

then current market value of the collateral, provided such replacement

is approved by the Lending Fiduciary.

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

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

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

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

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

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

conditions of the exemption.

C. Effective August 25, 1995, the restrictions of sections

406(a)(1)(A) through (D) and 406(b)(2) of the Act and the taxes imposed

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

extension of credit to an employee benefit plan by an MSC/UK Affiliate

to permit the settlement of securities transactions or in connection

with the writing of options contracts provided that the following

conditions are met:

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

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

received by such fiduciary or any affiliate thereof in connection with

such extension of credit; and

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

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

act, rules or regulations were applicable.

Section II--General Conditions

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

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

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

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

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

from U.S. registration requirements;

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

written agreement with the plan in which the MSC/UK Affiliate consents

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

the transactions covered by this exemption;

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

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

such transaction such records as are necessary to enable the persons

described in this section to determine whether the conditions of this

[[Page 4813]]

exemption have been met; except that a party in interest with respect

to an employee benefit plan, other than the MSC/UK Affiliate, shall not

be subject to a civil penalty under section 502(i) of the Act or the

taxes imposed by section 4975(a) or (b) of the Code, if such records

are not maintained, or are not available for examination as required by

this section, and a prohibited transaction will not be deemed to have

occurred if, due to circumstances beyond the control of the MSC/UK

Affiliate, such records are lost or destroyed prior to the end of such

six year period;

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

unconditionally available for examination during normal business hours

by duly authorized employees of the Department of Labor, the Internal

Revenue Service, plan participants and beneficiaries, any employer of

plan participants and beneficiaries, and any employee organization any

of whose members are covered by such plan; except that none of the

persons described in this subsection shall be authorized to examine

trade secrets of Morgan Stanley & Co. or the MSC/UK or any commercial

or financial information which is privileged or confidential.

III--Definitions

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

indirectly, through one or more intermediaries, controlling, controlled

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

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

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

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

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

the power to exercise a controlling influence over the management or

policies of a person other than an individual.

``Security'' shall include equities, fixed income securities,

options on equity and on fixed income securities, government

obligations, and any other instrument that constitutes a security under

U.S. securities laws. The term ``security'' does not include swap

agreements or other notional principal contracts.

For a more complete statement of the facts and representations

supporting this exemption, refer to the notice of proposed exemption

published on November 13, 1996 at 61 FR 58237.

FOR FURTHER INFORMATION CONTACT:

Mr. Ronald Willett of the Department, telephone (202) 219-8881. (This

is not a toll-free number.)

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

In Cookeville, Tennessee

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

10350]

Exemption

The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,

shall not apply to the cash sale (the Sale) by the Plan of certain

securities (the Securities) to Cassemco, Inc., the sponsoring employer

and party in interest with respect to the Plan; provided (1) the Sale

is a one-time transaction for cash, (2) the Plan pays no commissions

nor incurs any expenses in connection with the Sale, and (3) the Plan

receives as consideration for the Sale no less than the fair market

value of the Securities as of the date of the Sale.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on December 3, 1996, at 61

FR 64160.

FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,

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

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

Massachusetts

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

10351]

Exemption

PanAgora shall not be precluded from functioning as a ``qualified

professional asset manager'' pursuant to Prohibited Transaction

Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 1984) solely because

of a failure to satisfy Section I(g) of PTE 84-14, as a result of

affiliation with E.F. Hutton & Company, Inc. and Shearson Lehman

Brothers, Inc., formerly Shearson Lehman Hutton, Inc.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on December 3, 1996 at 61 FR

64161.

EFFECTIVE DATE: This exemption is effective as of September 22, 1989,

the date on which PanAgora was formed.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

a person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, DC, this 28th day of January, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 97-2388 Filed 1-30-97; 8:45 am]

BILLING CODE 4510-29-P