Prohibited Transaction Exemption 98-32; Exemption Application No. D-10459, et al.]; Grant of Individual Exemptions; Union Bank of Switzerland

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

Prohibited Transaction Exemption 98-32; Exemption Application No.

D-10459, et al.]; Grant of Individual Exemptions; Union Bank of

Switzerland

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.

Union Bank of Switzerland (UBS/Swiss) and UBS Securities, LLC (UBS

Securities) Located in Zurich, Switzerland and New York, New York,

Respectively

[Prohibited Transaction Exemption 98-32; Exemption Application Nos. D-

10459 and D-10460]

Exemption

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 (1) lending of securities to

UBS/Swiss, UBS Securities, UBS Ltd. (UBS/UK), UBS Securities Limited

(UBS/Japan) and their successors in interest, which are or will

[[Page 36959]]

be affiliated domestic or foreign broker-dealers of UBS

Securities,1 by employee benefit plans (the Client Plans or

Plans), including commingled investment funds holding plan assets, for

which UBS/Swiss, acting through its New York branch in connection with

securities lending activities (UBS NY), an affiliate of the proposed

UBS Borrowers, may serve as a securities lending agent, sub-agent, or

as a custodian or a directed trustee to Client Plans under either of

two securities lending arrangements, referred to herein as ``Plan A''

or ``Plan B''; and (2) the receipt of compensation by UBS NY in

connection with these transactions.

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\1\ For purposes of this exemption, UBS/Swiss, UBS/UK, UBS/Japan

and their successors in interest are collectively referred to as the

UBS Foreign Borrowers. In addition, UBS Securities, including its

successor in interest, and the UBS Foreign Borrowers are together

referred to herein as the UBS Borrowers or individually as a UBS

Borrower.

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This exemption is subject to the following conditions:

(a) For each Client Plan, neither UBS NY, any of the UBS Borrowers

nor any affiliate of those entities 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.

(b) With regard to--

(1) Plan A, under which UBS NY lends securities of a Client Plan to

any UBS Borrowers in either an agency or sub-agency capacity, such

arrangement is approved in advance by a Plan fiduciary who is

independent of UBS NY and the UBS Borrower and is negotiated by UBS NY

which acts as a liaison between the lender and the borrower to

facilitate the securities lending transaction.2

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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 UBS NY, beyond that provided pursuant to

Prohibited Transaction 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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(2) Plan B, under which the UBS Borrower directly negotiates the

agreement with the fiduciary of a Client Plan, including a Plan for

which UBS NY provides services with respect to the portfolio of

securities to be loaned pursuant to an exclusive borrowing arrangement

(the Exclusive Borrowing Arrangement), such Client Plan fiduciary is

independent of both the UBS Borrower and UBS NY, and UBS NY does not

participate in any such negotiations.

(c) The independent fiduciary of a Client Plan approves the general

terms of the securities loan agreement (the Loan Agreement) between the

Client Plan and the UBS Borrower.

(d) The terms of each loan of securities by a Client Plan to a UBS

Borrower are at least as favorable to such Plan as those of a

comparable arm's length transaction between unrelated parties.

(e) A Client Plan may terminate the agency or sub-agency

arrangement under Plan A or an Exclusive Borrowing Agreement under Plan

B at any time, without penalty, on five business days notice, whereupon

the UBS Borrowers will 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 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

the UBS Borrowers, whichever is less.

(f) The Client Plan or its designee receives from each UBS Borrower

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 the UBS Borrower, collateral consisting of U.S. currency,

securities issued or guaranteed by the United States Government or its

agencies or instrumentalities, or irrevocable bank letters of credit

issued by a U.S. bank, other than UBS NY or an affiliate thereof, or

any combination thereof, or other collateral permitted under PTE 81-6

as it may be amended or superseded.

(g) The market value (or in the case of a letter of credit, a

stated amount) of the collateral on the close of business on the day

preceding the day of the loan is initially at least 102 percent of the

market value of the loaned securities. The applicable Loan Agreement

gives the Client Plan a continuing security interest in and a lien on

the collateral. The level of collateral is monitored daily (either by

UBS NY under Plan A, or by UBS NY or another designee of the Client

Plan under Plan B). 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 loaned securities at the close of business on that day,

the UBS Borrower is required to deliver, by the close of business on

the next day, sufficient additional collateral to bring the level to at

least 102 percent.

(h) Prior to entering into a Loan Agreement, the applicable UBS

Borrower furnishes each Client Plan its most recently available audited

and unaudited statements to UBS NY, and in turn, such statements are

provided to the Client Plan before the Client Plan approves the terms

of the Loan Agreement. The Loan Agreement contains a requirement that

the applicable UBS Borrower must give prompt notice at the time of a

loan of any material adverse changes in its financial condition since

the date of the most recently furnished financial statements. If any

such changes have taken place, UBS NY does not make any further loans

to the UBS Borrower unless an independent fiduciary of the Client Plan

is provided notice of any material change and approves the loan in view

of the changed financial condition.

(i) 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. (Under such circumstances, the Client

Plan may pay a loan rebate or similar fee to UBS Borrowers, if such fee

is not greater than the fee the Client Plan would pay in a comparable

arm's length transaction with an unrelated party.)

(j) All procedures regarding the securities lending activities

will, at a minimum, conform to the applicable provisions of PTEs 81-6

and 82-63 as well as to applicable securities laws of the United

States, Switzerland, the United Kingdom or Japan.

(k) UBS NY agrees to indemnify and hold harmless the Client Plan in

the United States (including the sponsor and fiduciaries of such Client

Plan) for any transactions covered by this exemption with a UBS

Borrower so that the Client Plan does not have to litigate, in the case

of a UBS Foreign Borrower, in a foreign jurisdiction nor sue the UBS

Foreign Borrower to realize on the indemnification. Such

indemnification, by UBS NY, is against any and all reasonably

foreseeable damages, losses, liabilities, costs and expenses (including

attorney's fees) which the Client Plan may incur or suffer, arising

from any impermissible use by the UBS Borrower of the loaned securities

or from an event of default arising from the UBS Borrower's failing to

deliver loaned securities in accordance with the applicable Loan

Agreement or to otherwise comply with the terms of such agreement,

except to the extent that such losses or damages are caused by the

Client Plan's own negligence.

[[Page 36960]]

(1) If any event of default occurs, UBS NY, promptly and at its own

expense (subject to rights of subrogation in, to the collateral and

against such borrower), purchases or causes to be purchased, for the

account of the Client Plan, securities identical to the borrowed

securities (or their equivalent as discussed above). If the collateral

is insufficient to accomplish such purchase, UBS NY indemnifies the

Client Plan for any shortfall in the collateral plus interest, if

contractually applicable, 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 loans or failure to properly

indemnify under this provision). Alternatively, if such replacement

securities cannot be obtained on the open market, UBS NY pays the

Client Plan the difference in U.S. dollars between the market value of

the loaned securities and the market value of the related collateral on

the date of the borrower's breach of its obligation to return the

loaned securities.

(2) If, however, the event of default is caused by the UBS

Borrower's failure to return the securities within the designated time,

the Client Plan has the right to purchase securities identical to the

borrowed securities and apply the collateral to payment of the purchase

price and any other expenses of the Plan associated with the sale and/

or purchase.

(l) The Client Plan receives the equivalent of all distributions

made to holders of the borrowed securities, including all interest and

dividends on the loaned securities during the loan period.

(m) Prior to any Client Plan's approval of the lending of its

securities to any UBS Borrower, copies of the notice of proposed

exemption (the Notice) and the final exemption are provided to the

Client Plan.

(n) Each Client Plan receives monthly reports with respect to

securities lending transactions, including, but not limited to, the

information described in Representation 26 of the Summary of Facts and

Representations (the Summary) of the Notice, so that an independent

fiduciary of a Client Plan may monitor such transactions with the UBS

Borrower.

(o) Only Client Plans with total assets having an aggregate market

value of at least $50 million are permitted to lend securities to UBS

Borrowers; 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 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 UBS Borrowers, the foregoing $50 million requirement

is 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

Client 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 Regulation, which entity is engaged in securities lending

arrangements with UBS Borrowers, the foregoing $50 million requirement

is deemed satisfied if such trust or other entity has aggregate assets

which are in excess of $50 million (excluding the assets of any 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----

(A) Has full investment responsibility with respect to Client Plan

assets invested therein; and

(B) Has total assets under its management and control, exclusive of

the $50 million threshold amount attributable to Client Plan investment

in the commingled entity, which are in excess of $100 million.

(In addition, none of the entities described above must be formed

for the sole purpose of making loans of securities.)

(p) With respect to any calendar quarter, at least 50 percent or

more of the outstanding dollar value of securities loans negotiated on

behalf of Client Plans will be to unrelated borrowers.

(q) In addition to the above, all loans involving UBS Foreign

Borrowers, have the following requirements:

(1) Such Foreign Borrower is registered as a broker-dealer with the

Securities and Futures Authority of the United Kingdom in the case of

UBS/UK, the Swiss Federal Banking Commission in the case of UBS/Swiss,

and the Ministry of Finance, in the case of UBS/Japan;

(2) Such Foreign Borrower is in compliance with all applicable

provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities

Exchange Act of 1934 which provides for foreign broker-dealers a

limited exemption from United States registration requirements;

(3) All collateral is maintained in United States dollars or U.S.

dollar-denominated securities or letters of credit;

(4) All collateral is held in the United States and the situs of

the securities lending agreements (either the Loan Agreement under Plan

A or the Exclusive Borrowing Agreement under Plan B) is maintained in

the United States under an arrangement that complies with the indicia

of ownership requirements under section 404(b) of the Act and the

regulations promulgated under 29 CFR 2550.404(b)-1; and

(5) Prior to a transaction involving a UBS Foreign Borrower, the

applicable UBS Foreign Borrower--

(A) Agrees to submit to the jurisdiction of the United States;

(B) Agrees to appoint an agent for service of process in the United

States, which may be an affiliate (the Process Agent);

(C) Consents to service of process on the Process Agent; and

(D) Agrees that enforcement by a Client Plan of the indemnity

provided by UBS New York will occur in the United States courts.

(r) UBS NY and each UBS Foreign Borrower maintain, or cause to

maintain 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 (s)(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 UBS NY and/or

its affiliates, the records are lost or destroyed prior to the end of

the six year period; and

(2) No party in interest other than UBS NY or its affiliates shall

be subject to the civil penalty that may be assessed

[[Page 36961]]

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 (s)(1).

(s)(1) Except as provided in subparagraph (s)(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 (r) are

unconditionally available at their customary location during normal

business hours by --

(A) Any duly authorized employee or representative of the

Department, the Internal Revenue Service or the Securities and Exchange

Commission;

(B) Any fiduciary of a participating Client Plan or any duly

authorized representative of such fiduciary;

(C) Any contributing employer to any participating Client Plan or

any duly authorized employee representative of such employer; and

(D) Any participant or beneficiary of any participating Client

Plan, or any duly authorized representative of such participant or

beneficiary.

(s)(2) None of the persons described above in paragraphs

(s)(1)(B)--(s)(1)(D) of this paragraph (s)(1) are authorized to examine

the trade secrets of UBS NY or its affiliates or commercial or

financial information which is privileged or confidential.

For a more complete statement of the facts and representations

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

the Notice published on March 31, 1998 at 63 FR 15452.

Written Comments

During the comment period, the Department received one written

comment with respect to the Notice and no requests for a public

hearing. The comment letter was submitted by UBS/Swiss and UBS

Securities (together, the Applicants) and is intended to clarify the

operative language of the Notice and the Summary. Presented below are a

discussion of the Applicants' comments and the Department's responses.

General Comments

The Applicants wish to make the following general comments to

reflect changed circumstances since the original filing of the

exemption application.

1. Successors in Interest. The Applicants represent that there is

currently a pending merger between UBS Swiss and Swiss Bank. The

transaction, which has not been structured as an asset sale but rather

as a transfer of stock, would result in the formation of a new entity

that would be named ``UBS AG.'' In effect, the Applicants state that

the shareholders of UBS Swiss and Swiss Bank would surrender shares of

stock in their respective entities in exchange for shares of UBS AG.

Following the merger, UBS Securities would be renamed ``Warburg Dillon

Read LLC.'' The names of UBS/UK and UBS/Japan would remain unchanged.

The Applicants state that they have obtained final regulatory approval

and anticipate that the merger will be consummated by the end of June

1998.

To ensure that the requested exemption will still be effective

following the merger, the Applicants have requested that it be revised,

as necessary, to extend to successors in interest to the Applicants and

their affiliates. Therefore, the Department has revised the operative

language of the exemption by making it applicable to successors in

interest to UBS Swiss, UBS Securities and their affiliates, including

UBS NY and the UBS/UK and UBS/Japan.

2. Representation 1(b) of the Summary. The last sentence in the

second paragraph of Representation 1(b) of the Summary states that

``All borrowings by UBS Securities must conform to applicable

provisions of the Federal Reserve Board's Regulation T.'' The

Applicants note that Regulation T has been amended as of April 1, 1998

and therefore, believe that a representation as to compliance with

Regulation T should be made only to the extent it is applicable to the

UBS Borrower and the transaction. Accordingly, the Applicants suggest

that the last sentence of Representation 1(b) be revised to read as

follows:

All borrowings by UBS Securities must conform to applicable

provisions of the Federal Reserve Board's Regulation T, to the

extent that such regulation is applicable to UBS Securities and to

the transaction.

In concurrence, the Department has made the requested change in

Representation 1(b) of the Notice.

Specific Comments

1. Operative Language of the Notice and Representation 8 of the

Summary. In the operative language of the Notice, the introductory

paragraph and Representation 8 of the Summary briefly state that UBS NY

may serve as a securities lending agent, a sub-agent or as a custodian

or a directed trustee to Client Plans under either of two securities

lending arrangements, which are referred to therein as ``Plan A'' and

``Plan B.'' To clarify the statements made in these paragraphs, the

Applicants point out that when UBS NY effects securities lending

activities on behalf of a Client Plan, it may be acting as a lending

agent or a sub-agent pursuant to discrete agency documentation or

pursuant to authority granted under a trust or custodial agreement with

the Client Plan which expressly includes the securities lending

activity.

The Department has noted the clarification offered by the

Applicants.

2. Condition (k) of the Notice and Representations 23 and 38 of the

Summary. The Applicants suggest that the Department revise Condition

(k) of the Notice and Representation 23 and 38 of the Summary to

reflect more accurately the scope of the indemnification given by UBS

NY to a Client Plan. In this regard, the Applicants recommend that the

second sentence of Condition (k) and the second sentence of

Representation 38 be modified by striking the phrase ``the failure of

the UBS Borrower'' and inserting the phrase ``from an event of default

arising from the UBS Borrower's failing * * *'' after the word ``or.''

In response, the Department concurs with the requested

modifications and has revised the Notice, accordingly. Although

Representation 23 of the Summary contains language similar to that of

Condition (k) and Representation 38, the Department has not made a

corresponding change since the language contained therein already

appears to embody the Applicants' requested modification.

3. Condition (k)(1) of the Notice and Representation 23 of the

Summary. The Applicants note that UBS NY will perform its indemnity

within one business day of the insolvency event (either by (1) paying

the Client Plan the difference in U.S. dollars between the market value

of the loaned securities and the market value of the related collateral

on the date of the borrower's breach of its obligation to return the

loaned securities or (2) by purchasing securities identical to the

borrowed securities and applying the collateral to payment of the

purchase price and any other expenses of the Client Plan that may be

associated with the sale and/or purchase. Because UBS NY generally

performs its indemnity by the next business day, the Applicants

represent that UBS NY does not pay interest on any shortfall in

collateral arising from other than reinvestment risk but it does bear

the transaction costs of performing the indemnity. However, in the

event UBS NY is ever required to pay interest to a Client Plan, the

Applicants request that the phrase ``if contractually applicable'' be

inserted following the reference to ``interest'' in Condition

[[Page 36962]]

(k)(1) and in the second sentence of the second paragraph in

Representation 23.

In response, the Department has made the change requested by the

Applicants.

4. Condition (o)(2)(A) of the Notice and Representation 28(a) of

the Summary.

Condition (o)(2) of the Notice provides that--

In the case of two or more Client Plans which are not maintained by

the same employer, controlled group of corporations or employee

organization (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

Regulation, which entity is engaged in securities lending arrangements

with UBS Borrowers, the foregoing $50 million requirement is deemed

satisfied if such trust or other entity has aggregate assets which are

in excess of $50 million; provided that the fiduciary responsible for

making the investment decision on behalf of such group trust or other

entity--

(A) Is neither the sponsoring employer, a member of the controlled

group of corporations, the employee organization, nor an affiliate;

(B) Has full investment responsibility with respect to Client Plan

assets invested therein; and

(C) Has total assets under its management and control, exclusive of

the $50 million threshold amount attributable to Client Plan investment

in the commingled entity, which are in excess of $100 million.

Representation 28 of the Summary contains a similar provision. The

Department believes that subparagraph (A) above and clause (a) of

Representation 28 unnecessarily limit the ability of a Client Plan to

effect securities loans under the proposed lending program,

particularly in a situation where the independent investment manager's

own in-house plan wishes to invest in the commingled investment

vehicle. Therefore, the Department has modified the Condition and

Representation to read as follows:

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 Regulation, which entity is engaged in securities lending

arrangements with UBS Borrowers, 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 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--

(A) Has full investment responsibility with respect to plan assets

invested therein; and

(B) 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 effect, the independent investment manager's own plan may

participate in the commingled investment vehicle but for purposes of

determining whether the $50 million aggregation requirement is met, the

assets of the Unrelated Plans must be utilized.

5. Condition (q)(5)(D) of the Notice and Representations 25(d) and

32(d) of the Summary. Condition (q) of the Notice sets forth certain

supplemental requirements for securities loans involving UBS Foreign

Borrowers. Specifically, subparagraph 5 of Condition (q) describes the

limited form of indemnity that is to be provided by the UBS Foreign

Borrower to a Client Plan. For example, prior to a securities lending

transaction, the UBS Foreign Borrower must (a) agree to submit to the

jurisdiction of the United States; (b) agree to appoint an agent for

service of legal process; and (c) consent to service of process on the

Process Agent.

The Applicants note, however, that the language of Condition

(q)(5)(D) of the Notice and Representations 25(d) and 32(d) of the

Summary appears to have been added in error. These paragraphs state

that the applicable UBS Foreign Borrower ``agrees to be indemnified in

the United States for any transaction covered by this exemption.''

Because no UBS Borrower will be indemnified under this exemption, the

Applicants suggest that the language be clarified to state that the

``UBS Foreign Borrower agrees that enforcement by a Client Plan of the

indemnity provided by UBS New York will occur in the United States

courts.''

In response, the Department concurs with the clarification made by

the Applicants and has made the requested change.

6. Representation 11 of the Summary. The Applicants request that

the second sentence in the second paragraph of Representation 11 of the

Summary be modified by inserting the phrase ``will be the same as that

approved by the Client Plan fiduciary in the Primary Lending

Agreement.'' Therefore, the Department has revised the sentence to read

as follows:

Thus, for example, the form of Loan Agreement will be the same

as that approved by the Client Plan fiduciary in the Primary Lending

Agreement.

7. Representation 27 of the Summary. Representation 27 of the

Summary describes the contents of the monthly report that will be given

to the independent fiduciary of a Client Plan by UBS NY. Among other

things, the monthly report will enable the Client Plan fiduciary to

monitor securities lending activity, rates on loans to UBS Borrowers

compared with loans to other brokers and the level of collateral. The

Applicants wish to emphasize that while they cannot be required to

divulge, in the monthly report, confidential information regarding

securities loans made by outside lenders, they will disclose all of a

Client Plan's outstanding securities loans that are made to UBS

Borrowers. Therefore, the Applicants request that Representation 27 be

revised, in part, as follows:

In order to provide the means for monitoring lending activity,

rates on loans to UBS Borrowers compared with loans to other brokers

and the level of collateral on the loans, it is represented that the

monthly report will show, on a daily basis, the market value of all

of the Client Plan's outstanding securities loans to the UBS

Borrower and to other borrowers as compared to the total collateral

held for both categories of loans.

In response, the Department concurs with the Applicants'

clarification of the monthly report and has made the requested change.

For further information regarding the Applicants' comments or other

matters discussed herein, interested persons are encouraged to obtain

copies of the exemption application file (Exemption Application Nos. D-

10459 and D-10460) the Department is maintaining in this case. The

complete application file, as well as all supplemental submissions

received by the Department, are made available for public inspection in

the Public Documents Room of the Pension and Welfare Benefits

Administration, Room N-5638, U.S. Department of Labor, 200 Constitution

Avenue, NW, Washington, DC 20210.

Accordingly, after giving full consideration to the entire record,

including the written comment provided by the Applicants, the

Department has made the aforementioned changes to the Notice and has

decided to grant the exemption

[[Page 36963]]

subject to the modifications or clarifications described above.

For Further Information Contact: Ms. Jan D. Broady of the

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

Breland Investments, Inc. Profit Sharing Plan and Trust (the Plan)

Located in Phoenix, Arizona

[Prohibited Transaction Exemption 98-33; Exemption Application No: D-

10529]

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 (1) the proposed loan (the Loan) by the individually

directed account (the Account) in the Plan 3 of Dr. Albert

E. Breland (Dr. Breland), to Mesa Scholastic Enterprises, a

disqualified person with respect to the Plan, and (2) the personal

guarantee of the Loan by Dr. Breland, a disqualified person with

respect to the Plan, provided the following conditions are satisfied:

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\3\ Because Dr. Breland is the only participant in the Plan,

there is no jurisdiction under 29 CFR 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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(a) the terms of the Loan are at least as favorable to the Account

as those obtainable in an arm's length transaction with an unrelated

party;

(b) the amount of the Loan does not exceed 25% of the assets in the

Account;

(c) the Loan is secured by a first deed of trust on the commercial

real property, which has been appraised by a qualified independent

appraiser to have a fair market value not less than 150% of the

outstanding balance of the Loan throughout its duration;

The Department received no comments or requests for a hearing in

response to the Notice of Proposed Exemption (the Notice) published on

Friday, May 29, 1998 at 63 FR 29458. However, in the paragraph entitled

``Notice to Interested Persons'' contained in the Notice, the word

``Overland'' should be deleted and the word ``Breland'' should be

inserted in lieu thereof.

For a more complete statement of the summary of facts and

representations supporting the Department's decision to grant this

exemption, refer to the Notice.

For Further Information Contact: Mr. James Scott Frazier, telephone

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

Karen J. Hartley Profit Sharing Plan (P/S Plan) and Karen J. Hartley

Money Purchase Pension Plan and Trust Agreement (M/P Plan,

collectively; the Plans) Located in Eugene, Oregon

[Prohibited Transaction Exemption 98-34; Exemption Application Nos. D-

10588 and D-10589]

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 loan (the Loan) by the Plans to Karen J. Hartley, the

trustee and sole participant of the Plans and, a disqualified person

with respect to the Plans; 4 provided that the following

conditions will be met:

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\4\ Pursuant to CFR 2510.3-3(b) and (c), the Department has no

jurisdiction with respect to the Plans under Title I of the Act.

However, there is jurisdiction under Title II of the Act pursuant to

section 4975 of the Code.

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1. The Loan will be structured such that each Plan will lend up to

25% of its assets. However, the aggregate amount of the Loan will not

exceed $40,000 at any time;

2. The outstanding balance of the Loan will at no time exceed 25%

of the Plans' aggregate assets;

3. The Plans will bear no expenses with respect to the proposed

transaction;

4. The terms and conditions of the Loan will be at least as

favorable to the Plans as those obtainable in arm's-length transaction

with an unrelated party; and

5. The Loan will be adequately secured by collateral, which at all

times will be equal to 100% of the outstanding principal amount of the

Loan plus 6 months interest at the Loan's interest rate of 8.2%. In the

event the collateral amount falls below this required amount, this

exemption will no longer be available.

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 May 18, 1998 at 63 FR

27332.

For Further Information Contact: Ekaterina A. Uzlyan of the

Department at (202) 219-8883. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions do not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, DC, this 1st day of July 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 98-18010 Filed 7-7-98; 8:45 am]

BILLING CODE 4510-29-P