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

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

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

10694, et al.]

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

et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

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

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

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

interested person might submit a written request that a public hearing

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

have complied with the requirements of the notification to interested

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

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

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

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

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

of Labor.

Statutory Findings

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

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

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

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

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

and beneficiaries; and

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

beneficiaries of the plans.

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

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

10694]

Exemption

Section I. Covered Transactions

The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1)

and (2) of the Act and the sanctions resulting from the application of

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

(E) of the Code, shall not apply to the lending of securities to

affiliates of The Chase Manhattan Corporation (CMC), which are engaged

in CMC's capital markets line of business (Global Capital Markets), by

employee benefit plans (the Client Plans), including commingled

investment funds holding Client Plan assets, for which CMC, through its

Global Investor Services line of Business, as operated through CMB and

its affiliates (GIS), acts as directed trustee or custodian, and for

which CMC through its Global Securities Lending Division or any other

similar division of CMB or a U.S. affiliate of CMC (collectively, GSL)

acts as securities lending agent or sub-agent and (2) to the receipt of

compensation by GSL in connection with the proposed transactions,

provided the general conditions set forth below in Section II are met.

Section II. General Conditions

(a) This exemption applies to loans of securities to Global Capital

Markets, as operated through CMB in the United States (Global Capital

Markets/U.S. or the U.S. Affiliated Borrower) and in the following

foreign countries: the United Kingdom (Global Capital Markets/U.K.),

Canada (Global Capital Markets/Canada), Australia (Global Capital

Markets/Australia), Japan (Global Capital Markets/Japan)(collectively,

the Foreign Affiliated Borrowers). Global Capital Markets will also

include other companies or their successors which are affiliated with

either CMB or CMC within these countries.1

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\1\ Unless otherwise noted, Global Capital Markets will consist

collectively of the above referenced entities.

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(b) For each Client Plan, neither GIS, Global Capital Markets, GSL,

nor any other division or affiliate of CMC has or exercises

discretionary authority or control with respect to the investment of

the assets of Client Plans involved in the transaction (other than with

respect to the lending of securities designated by an independent

fiduciary of a Client Plan as being available to lend and the

investment of cash collateral after securities have been loaned and

collateral received), or renders investment advice (within the meaning

of 29 CFR 2510.3-21(c)) with respect to those assets, including

decisions concerning a Client Plan's acquisition and disposition of

securities available for loan.

(c) Before a Client Plan participates in a securities lending

program and before any loan of securities to Global Capital Markets is

effected, a Client Plan fiduciary which is independent of Global

Capital Markets must have--

(1) Authorized and approved a securities lending authorization

agreement with GSL, where GSL is acting as the securities lending

agent;

(2) Authorized and approved the primary securities lending

authorization agreement with the primary lending agent where GSL is

lending securities under a sub-agency agreement with the primary

lending agent;2 and

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\2\ The Department, herein, is not providing exemptive relief

for securities lending transactions engaged in by primary lending

agents, other than GSL, beyond that provided pursuant to Exemption

(PTE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754,

May 19, 1987) and PTE 82-63 (47 FR 14804, April 6, 1982).

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(3) Approved the general terms of the securities loan agreement

(the Loan Agreement) between such Client Plan and Global Capital

Markets, the specific terms of which are negotiated and entered into by

GSL.

(d) Each loan of securities by a Client Plan to Global Capital

Markets is at market rates and terms which are at least as favorable to

such Client Plan as if made at the same time and under the same

circumstances to an unrelated party.

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

arrangement at any time without penalty to such Client Plan on five

business days notice whereupon Global Capital Markets delivers

securities identical to the borrowed securities (or the equivalent in

the event of reorganization, recapitalization or merger of the issuer

of the borrowed securities) to the Client Plan within--

(1) The customary delivery period for such securities;

(2) Five business days; or

(3) The time negotiated for such delivery by the Client Plan and

Global Capital Markets, whichever is less.

[[Page 46420]]

(f) The Client Plan receives from Global Capital Markets (either by

physical delivery or by book entry in a securities depository located

in the United States, wire transfer or similar means) by the close of

business on or before the day the loaned securities are delivered to

Global Capital Markets, collateral consisting of cash, securities

issued or guaranteed by the United States Government or its agencies or

instrumentalities, or irrevocable United States bank letters of credit

issued by a U.S. bank, which is a person other than Global Capital

Markets or an affiliate thereof, or any combination thereof, or other

collateral permitted under PTE 81-6 (as amended from time to time or,

alternatively, any additional or superseding class exemption that may

be issued to cover securities lending by employee benefit plans),

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

market value (or, in the case of a letter of credit, a stated amount)

initially equal to at least 102 percent of the market value of the

loaned securities.

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

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

borrowed securities at the close of business on that day, Global

Capital Markets delivers additional collateral on the following day

such that the market value of the collateral again equals 102 percent.

(h) The Loan Agreement gives the Client Plan a continuing security

interest in, title to, or the rights of a secured creditor with respect

to the collateral and a lien on the collateral and GSL monitors the

level of the collateral daily.

(i) Before entering into a Loan Agreement, Global Capital Markets

furnishes GSL the most recently available audited and unaudited

statements of the financial condition of the applicable borrower within

Global Capital Markets. Such statements are, in turn, provided by GSL

to the Client Plan. At the time of the loan, Global Capital Markets

gives prompt notice to the Client Plan fiduciary of any material

adverse change in the borrower's financial condition since the date of

the most recent financial statement furnished to the Client Plan. In

the event of any such changes, GSL requests approval of the Client Plan

to continue lending to Global Capital Markets before making any such

additional loans. No new securities loans will be made until approval

is received and each loan constitutes a representation by Global

Capital Markets that there has been no such material adverse change.

(j) In return for lending securities, the Client Plan either--

(1) Receives a reasonable fee, which is related to the value of the

borrowed securities and the duration of the loan; or

(2) Has the opportunity to derive compensation through the

investment of cash collateral. (In the case of cash collateral, the

Client Plan may pay a loan rebate or similar fee to Global Capital

Markets if such fee is not greater than the fee the Client Plan would

pay an unrelated party in a comparable arm's length transaction.)

(k) All procedures regarding the securities lending activities

conform to the applicable provisions of PTEs 81-6 and PTE 82-63 (as

amended from time, or alternatively, any additional or superseding

class exemption that may be issued to cover securities lending by

employee benefit plans).

(l) If Global Capital Markets defaults on the securities loan or

enters bankruptcy, the collateral will not be available to Global

Capital Markets or its creditors, but will be used to make the Client

Plan whole. In this regard,

(1) In the event a Foreign Affiliated Borrower defaults on a loan,

CMB will liquidate the loan collateral to purchase identical securities

for the Client Plan. If the collateral is insufficient to accomplish

such purchase, CMB will indemnify the Client Plan for any shortfall in

the collateral plus interest on such amount and any transaction costs

incurred (including attorney's fees of the Client Plan for legal

actions arising out of the default on the loans or failure to indemnify

properly under this provision). Alternatively, if such identical

securities are not available on the market, the GSL will pay the Client

Plan cash equal to--

(i) The market value of the borrowed securities as of the date they

should have been returned to the Client Plan, plus

(ii) All the accrued financial benefits derived from the beneficial

ownership of such loaned securities as of such date, plus

(iii) Interest from such date to the date of payment.

The lending Client Plans will be indemnified in the United States

for any loans to the Foreign Affiliated Borrowers.

(2) In the event the U.S. Affiliated Borrower defaults on a loan,

CMB will liquidate the loan collateral to purchase identical securities

for the Client Plan. If the collateral is insufficient to accomplish

such purchase, either CMB or the U.S. Affiliated Borrower will

indemnify the Client Plan for any shortfall in the collateral plus

interest on such amount and any transaction costs incurred (including

attorney's fees of the Client Plan for legal actions arising out of the

default on the loans or failure to indemnify property under this

provision).

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

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

including all interest, dividends and distributions on the loaned

securities during the loan period.

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

securities to Global Capital Markets, copies of the notice of proposed

exemption and the final exemption are provided to the Client Plan.

(o) Each Client Plan receives a monthly report with respect to its

securities lending transactions, including but not limited to the

information described in Representation 24 of the proposed exemption,

so that an independent fiduciary of the Client Plan may monitor the

securities lending transactions with Global Capital Markets.

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

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

Global Capital Markets; provided, however, that--

(1) In the case of two or more Client Plans which are maintained by

the same employer, controlled group of corporations or employee

organization (i.e., the Related Client Plans), whose assets are

commingled for investment purposes in a single master trust or any

other entity the assets of which are ``plan assets'' under 29 CFR

2510.3-101 (the Plan Asset Regulation), which entity is engaged in

securities lending arrangements with Global Capital Markets, the

foregoing $50 million requirement shall be deemed satisfied if such

trust or other entity has aggregate assets which are in excess of $50

million; provided that if the fiduciary responsible for making the

investment decision on behalf of such master trust or other entity is

not the employer or an affiliate of the employer, such fiduciary has

total assets under its management and control, exclusive of the $50

million threshold amount attributable to plan investment in the

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

(2) In the case of two or more Client Plans which are not

maintained by the same employer, controlled group of corporations or

employee organization (i.e., the Unrelated Client Plans), whose assets

are commingled for investment purposes in a group trust or any other

form of entity the assets of which are ``plan assets'' under the Plan

Asset

[[Page 46421]]

Regulation, which entity is engaged in securities lending arrangements

with Global Capital Markets, the foregoing $50 million requirement is

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

in excess of $50 million (excluding the assets of any Client Plan with

respect to which the fiduciary responsible for making the investment

decision on behalf of such group trust or other entity or any member of

the controlled group of corporations including such fiduciary is the

employer maintaining such Plan or an employee organization whose

members are covered by such Plan). However, the fiduciary responsible

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

other entity--

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

invested therein; and

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

of the $50 million threshold amount attributable to plan investment in

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

(In addition, none of the entities described above are formed for

the sole purpose of making loans of securities.)

(q) With respect to each successive two week period, on average, at

least 50 percent or more of the outstanding dollar value of securities

loans negotiated on behalf of Client Plans by GSL, in the aggregate,

will be to unrelated borrowers.

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

Affiliated Borrowers within Global Capital Markets have the following

supplemental requirements:

(1) Such Foreign Affiliated Borrower is registered as a bank or

broker-dealer with--

(i) The Financial Services Authority or the Securities and Futures

Authority, in the case of Global Capital Markets/U.K.;

(ii) The Office of the Superintendent of Financial Institutions

(OSFI), or the Ontario Securities Commission and/or the Investment

Dealers Association, in the case of Global Capital Markets/Canada;

(iii) The Australian Prudential Regulation Authority (APRA), or the

Australian Securities & Investments Commission and/or the Australian

Stock Exchange Limited, in the case of Global Capital Markets/

Australia; and

(iv) The Ministry of Finance and/or the Tokyo Stock Exchange, in

the case of Global Capital Markets/Japan.

(2) Such broker-dealer or bank is in compliance with all applicable

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

Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-

dealers a limited exemption from United States registration

requirements;

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

dollar-denominated securities or letters of credit of U.S. banks or any

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

amended from time to time, or alternatively, any additional or

superseding class exemption that may be issued to cover securities

lending by employee benefit plans);

(4) All collateral is held in the United States;

(5) The situs of the Loan Agreement is maintained in the United

States;

(6) The lending Client Plans are indemnified by CMB in the United

States for any transactions covered by this exemption with the Foreign

Affiliated Borrower so that the Client Plans do not have to litigate in

a foreign jurisdiction nor sue the Foreign Affiliated Borrower to

realize on the indemnification; and

(7) Prior to the transaction, each Foreign Affiliated Borrower

enters into a written agreement with GSL on behalf of the Client Plan

whereby the Foreign Affiliated Borrower consents to service of process

in the United States and to the jurisdiction of the courts of the

United States with respect to the transactions described herein.

(s) CMB or Chase Securities Inc. (CSI) maintains, or causes to be

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

date of such transaction, in a manner that is convenient and accessible

for audit and examination, such records as are necessary to enable the

persons described in paragraph (t)(1) to determine whether the

conditions of the exemption have been met, except that--

(1) A prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of CMB or CSI, the

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

and

(2) No party in interest other than CMB or CSI shall be subject to

the civil penalty that may be assessed under section 502(i) of the Act,

or to the taxes imposed by section 4975(a) and (b) of the Code, if the

records are not maintained, or are not available for examination as

required below by paragraph (t)(1).

(t)(1) Except as provided in subparagraph (t)(2) of this paragraph

and notwithstanding any provisions of subsections (a)(2) and (b) of

section 504 of the Act, the records referred to in paragraph (s) are

unconditionally available at their customary location during normal

business hours by:

(i) Any duly authorized employee or representative of the

Department, the Internal Revenue Service or the Securities and Exchange

Commission;

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

authorized representative of such fiduciary;

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

any duly authorized employee representative of such employer; and

(iv) Any participant or beneficiary of any participating Client

Plan, or any duly authorized representative of such participant or

beneficiary.

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

(t)(1)(ii)-(t)(1)(iv) of this paragraph (t)(1) are authorized to

examine the trade secrets of CMB, the U.S. Affiliated Borrowers, or the

Foreign Affiliated Borrowers or commercial or financial information

which is privileged or confidential.

III. Definitions

For purposes of this exemption,

(a) The terms ``CMB'' and ``CMC'' as referred to herein in Sections

I and II, refer to The Chase Manhattan Bank and its parent, The Chase

Manhattan Corporation.

(b) The term ``affiliate'' means any entity now or in the future,

directly or indirectly, controlling, controlled by, or under common

control with CMC or its successors. (For purposes of this definition,

the term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.)

(c) The term ``U.S. Affiliated Borrower'' means an affiliate of CMC

that is a bank supervised by the United States or a State, or a broker-

dealer registered under the 1934 Act.

(d) The term ``Foreign Affiliated Borrower'' means an affiliate of

CMC that is a bank or a broker-dealer which is supervised by--

(1) The Financial Services Authority or the Securities and Futures

Authority in the United Kingdom;

(2) OSFI, or the Ontario Securities Commission and/or the

Investment Dealers Association in Canada;

(3) APRA, or the Australian Securities & Investments Commission

and/or the Australian Stock Exchange in Australia; and

(4) The Ministry of Finance and/or the Tokyo Stock Exchange in

Japan.

For a more complete statement of the facts and representations

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

the notice of proposed exemption on June 25, 1999 at 64 FR 34281.

[[Page 46422]]

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

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

Downers Grove, IL

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

10707]

Exemption

The sanctions resulting from the application of section 4975 of the

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

not apply to the proposed sale (the Sale) of certain improved real

property (the Property) by the Plan to Henry H. Borland III and Pat

Borland, the Plan trustees (the Trustees) and disqualified persons with

respect to the Plan,3 provided the following conditions are

met:

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\3\ Since Mr. Borland is the sole owner of the Plan sponsor and

the only participant in the Plan, there is no jurisdiction under

Title I of the Act pursuant to 29 CFR 2510.3-3(b). However, there is

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

the Code.

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(a) The terms and conditions of the Sale are at least as favorable

to the Plan as those obtainable in an arm's length transaction with an

unrelated party;

(b) The Trustees purchase the Property from the Plan for the

greater of $200,000 or the fair market value of the Property as of the

date of the transaction, as determined by a qualified, independent

appraiser;

(c) The Sale is a one-time transaction for cash; and

(d) The Plan pays no fees or commissions in connection with the

Sale.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on June 25, 1999 at 64 FR

34292.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

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

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

or representations described in the application change after the

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

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

exemption may be made to the Department.

Signed at Washington, DC, this 20th day of August, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-22025 Filed 8-24-99; 8:45 am]

BILLING CODE 4510-29-P