[Federal Register Volume 63, Number 16 (Monday, January 26, 1998)]
[Notices]
[Pages 3767-3772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1789]
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PENSION AND WELFARE BENEFITS ADMINISTRATION
[Application No. D-10429]
Notice of Proposed Individual Exemption to Amend and Replace
Prohibited Transaction Exemption (PTE) 96-14 Involving Morgan Stanley &
Co. Incorporated (MS&Co) and Morgan Stanley Trust Company (MSTC),
Located in New York, NY
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption to modify and replace
PTE 96-14.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed individual exemption
which, if granted, would amend and replace PTE 96-14 (61 FR 10032,
March 12, 1996). PTE 96-14, as clarified by a Notice of Technical
Correction dated June 4, 1996 (61 FR 28243), permits the lending of
securities to MS&Co and to any other U.S. registered broker-dealers
affiliated with MSTC (the Affiliated Broker-Dealers; collectively, the
MS Broker-Dealers) by employee benefit plans with respect to which the
MS Broker-Dealer who is borrowing such securities is a party in
interest or for which MSTC acts as directed trustee or custodian and
securities lending agent. In addition, PTE 96-14 permits MSTC to
receive compensation in connection with securities lending
transactions. These transactions are described in a notice of pendency
that was published in the Federal Register on August 11, 1995 at 60 FR
41118. PTE 96-14 is effective as of March 12, 1996.
If granted, the proposed exemption would replace PTE 96-14 but
would incorporate by reference the facts, representations and virtually
all of the conditions that are contained in the notice, the final
exemption and the technical correction. However, Condition (9) of PTE
96-14, which has been redesignated herein as Condition (12), would be
amended. Condition (9) of PTE 96-14 provides that--
Only plans whose total assets have a market value of at least $50
million will be permitted to lend securities to the MS Broker-
Dealers. In the case of 2 or more plans maintained by a single
employer or controlled group of employers, the $50 million
requirement may be met by aggregating the assets of such plans if
the assets are commingled for investment purposes in a single master
trust;
The applicants have requested that this condition be modified to
allow two or more plans which are maintained by the same employer,
controlled group of corporations or employee organization (the Related
Plans) as well as two or more plans which are not maintained by the
same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are invested in a
single, commingled investment vehicle that is managed by a fiduciary
which is independent of the MS Broker-Dealers, to aggregate their
assets within the pooled investment vehicle in order to satisfy the $50
million investment threshold for lending securities to MS Broker-
Dealers. However, the fiduciary exercising investment discretion over
the pooled vehicle, particularly if the fiduciary is an outside
manager, must possess some minimum level of investor sophistication by
satisfying an ``outside business'' test.
In addition, the Department has decided to revise certain of the
conditions contained in PTE 96-14. In this regard, the Department has
added several new conditions to the pendency notice relating to such
matters as disclosures, compensation, outside
[[Page 3768]]
borrowers and recordkeeping. The Department has also modified certain
of the existing conditions and provided definitions of the terms
``affiliate'' and ``control.''
The proposed exemption would affect participants and beneficiaries
of, and fiduciaries with respect to plans engaging in securities
lending transactions with the MS Broker-Dealers.
EFFECTIVE DATE: If granted, the proposed exemption would be effective
as of March 12, 1996.
DATES: Written comments and requests for a public hearing should be
received by the Department on or before March 27, 1998.
ADDRESSES: All written comments and requests for a public hearing
(preferably, three copies) should be sent to the Office of Exemption
Determinations, Pension and Welfare Benefits Administration, Room N-
5649, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: Application No. D-10429. The
application pertaining to the proposed exemption and the comments
received will be available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5507, 200 Constitution Avenue, NW.,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S.
Department of Labor, telephone (202) 219-8881. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption that would amend and
replace PTE 96-14. PTE 96-14 provides an exemption from certain
prohibited transaction restrictions of section 406 of the Employee
Retirement Income Security Act of 1974 (the Act) and from the sanctions
resulting from the application of section 4975 of the Internal Revenue
Code of 1986 (the Code), as amended, by reason of section 4975(c)(1) of
the Code. The proposed exemption was requested in an application filed
on behalf of MS&Co and MSTC (collectively, the Applicants) pursuant to
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, 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.
Accordingly, this proposed exemption is being issued solely by the
Department.
Specifically, PTE 96-14 provides exemptive relief from sections
406(a)(1)(A) through (D) 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, with
respect to the lending of securities to MS&Co and to any other MS
Broker-Dealers by employee benefit plans with respect to which the MS
Broker-Dealer who is borrowing such securities is a party in interest
or for which MSTC acts as a directed trustee or custodian and
securities lending agent and to the receipt of compensation by MSTC in
connection with these transactions, provided certain enumerated
conditions are met.
Subsequent to the granting of PTE 96-14, the Applicants informed
the Department that the specific wording of Condition (9) of the
exemption would preclude master trusts, group trusts, bank collective
investment funds, insurance company pooled separate accounts and other
commingled investment vehicles from lending securities to the MS
Broker-Dealers unless each plan participating therein had assets with
an aggregate fair market value of at least $50 million. However, the
Applicants note that Representation 25 of the Summary of Facts and
Representations of the proposed exemption states that the intent of the
$50 million restriction is to ensure that any lending to the MS Broker-
Dealers will be monitored by an independent fiduciary of above average
experience and sophistication in matters relating to securities
lending. To the extent that the purpose of this restriction is to
ensure the sophistication of the fiduciary who is making the lending
decision on behalf of plans, the Applicants believe that the commingled
investment vehicles whose total assets have an aggregate market value
of at least $50 million and which are managed by a fiduciary who is
independent of the MS Broker-Dealers should also be permitted to lend
securities to such broker-dealers, provided that such commingled
entities have not been formed for the sole purpose of making loans of
securities. Although the Department agrees with the Applicant, it has
proposed certain additional requirements for pooled arrangements
involving the assets of either Related Plans or Unrelated Plans. These
additional requirements are as follows:
A. Related Plans
With respect to two or more plans, which are maintained by the same
employer, controlled group of corporations or employee organization,
whose assets are invested in a master trust or any other form of plan
asset look-through entity, which entity is engaged in securities
lending arrangements with the MS Broker-Dealers, the Department notes
that the $50 million threshold may be satisfied by aggregating the
assets of the investing plans within the pooled vehicle. In this
regard, the Department also notes that an employer may retain an
independent investment manager to manage all or a portion of plan
assets invested in a master trust. Under these circumstances, the
fiduciary must have 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.
B. Unrelated Plans
For two or more plans which are not maintained by the same
employer, controlled group of corporations or employee organization,
whose assets are invested in a group trust or other plan asset look-
through entity, which entity is engaged in securities lending
arrangements with the MS Broker-Dealers, the $50 million threshold will
apply to the aggregate assets of such entity so long as the fiduciary
responsible for making the investment decision on behalf of the group
trust or other plan assets look-through entity is not the sponsoring
employer, a member of the controlled group of corporations, the
employee organization, or an affiliate, and has full investment
responsibility 1 with respect to the plan assets invested
therein. Also, the fiduciary must have 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.
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\1\ For purposes of this exemption, the term ``full investment
responsibility'' means that the fiduciary responsible for making the
investment decision has and exercises discretionary management
authority over all of the assets of the group trust or other plan
assets look-through entity.
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Accordingly, Condition (9) of PTE 96-14, which has been
redesignated herein as Condition (12), has been revised to read as
follows:
(12) Only plans with total assets having an aggregate market
value of at least $50 million will be permitted to lend securities
to the MS Broker-Dealers; provided however that--
(a) In the case of two or more plans which are maintained by the
same employer,
[[Page 3769]]
controlled group of corporations or employee organization (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 the
MS Broker-Dealers, 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, or
(b) In the case of two or more plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated 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 the
MS Broker-Dealers, 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 the fiduciary
responsible for making the investment decision on behalf of such
group trust or other entity--
(i) Is neither the sponsoring employer, a member of the
controlled group of corporations, the employee organization, nor an
affiliate,
(ii) Has full investment responsibility with respect to plan
assets invested therein, and
(iii) 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 must be
formed for the sole purpose of making loans of securities.)
As previously noted, in addition to the foregoing modifications,
the Department has determined to revise certain of the conditions
contained in PTE 96-14. In this regard, the Department has revised or
added new conditions in Section I of the proposal pertaining to (a) The
arm's length nature of each loan of securities by a client-plan to an
MS Broker-Dealer (Condition 2); (b) approval of the general terms of
the securities loan agreement by an independent fiduciary (Condition
3); (c) disclosures concerning the financial condition of the MS
Broker-Dealer (Condition 7); (d) the compensation paid to a client-plan
for lending securities (Condition 8); (e) indemnification and holding
harmless of the client-plan by the MS Broker-Dealer against all losses,
damages, liabilities, costs and expenses (Condition 10); (f) a
requirement that MSTC will not make a securities loan to any MS Broker-
Dealer on any day on which the market value of the securities proposed
to be loaned, when added to the market value of all client-plan
securities subject to outstanding loans to MS Broker-Dealers, exceeds
50 percent of the market value of all client-plan securities that are
subject to securities loans, including the market value of securities
proposed to be loaned to the MS Broker-Dealer (Condition 13); (g) the
receipt of monthly reports by a client-plan's independent fiduciary
relating to securities lending transactions engaged in by the client-
plan (Condition 16); and (h) a general recordkeeping requirement that
is to be complied with by MS&Co and its affiliates (Section II). In
addition, the Department has defined the terms ``affiliate'' and
``control'' in Section III.
The new or revised language, which has been incorporated herein,
appears in the Summary of Facts and Representations underlying PTE 96-
14 as well as in the original exemption application. For language that
did not appear in these documents, the Department consulted with the
Applicants before making the revisions. This new or modified language
is set forth as follows:
Section I. Covered Transactions
(New or Revised Conditions)
(2) The terms of each loan of securities by a client-plan to the
MS Broker-Dealer will be at least as favorable to such plan as those
of a comparable arm's length transaction between unrelated parties;
(3) Any arrangement for MSTC to lend plan securities to the MS
Broker-Dealers will be approved in advance by a plan fiduciary who
is independent of MSTC and the MS Broker-Dealers; (In this regard,
the independent fiduciary also will approve the general terms of the
securities loan agreement between the client-plan and the MS Broker-
Dealer, the specific terms of which are negotiated and entered into
by MSTC which will act as a liaison between the lender and the
borrower to facilitate the lending transaction.)
(7) Prior to entering into a loan agreement, the MS Broker-
Dealer will furnish its most recent publicly-available audited and
unaudited financial statements to MSTC, which, in turn, will provide
the statements to the client-plan before the plan is asked to
approve the terms of the loan agreement. The loan agreement will
contain a requirement that the MS Broker-Dealer must promptly notify
lenders 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, MSTC
will not make any further loans to the MS Broker-Dealer unless an
independent fiduciary of the client-plan approves the loan in view
of the changed financial condition;
(8) In return for lending securities, the client-plan either
will --
(a) Receive a reasonable fee, which is related to the value of
the borrowed securities and the duration of the loan, or
(b) Have 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 the borrowing MS
Broker-Dealer, 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.)
(10) The MS Broker-Dealer will indemnify and hold harmless each
lending client-plan against any and all losses, damages,
liabilities, costs and expenses (including attorney's fees) incurred
by such plan in connection with the lending of securities to the MS
Broker-Dealers;
(13) No loan of securities will be made by MSTC as securities
lending agent to any MS Broker-Dealer on any day on which the market
value of the securities proposed to be loaned, when added to the
market value of all client-plan securities subject to outstanding
loans to MS Broker-Dealers, exceeds 50 percent of the market value
of all client-plan securities subject to securities loans, including
the market value of securities proposed to be loaned to the MS
Broker-Dealer. (For purposes of this paragraph, market value shall
be determined in U.S. dollars, based on the last preceding business
day's closing prices of the securities and the last preceding
business day's closing foreign exchange rates, if applicable.);
(16) Each client-plan will receive monthly reports with respect
to securities lending transactions so that an independent fiduciary
of a client-plan may monitor such transactions with the MS Broker-
Dealer;
Section II. General Conditions
(1) The MS Broker-Dealers will maintain, or cause to be
maintained, for a period of six years from the date of such
transactions, in a manner that is convenient and accessible for
audit and examination, such records as are necessary to enable the
persons described in paragraph (2) to determine whether the
conditions of the exemption have been met, except that--
(a) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the MS
Broker-Dealers, the records are lost or destroyed prior to the end
of the six year period, and
(b) No party in interest other than the MS Broker-Dealers 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 (2);
(2) Notwithstanding any provisions of subsections (a)(2) and (b)
of section 504 of the Act, the records referred to in paragraph (1)
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 (the SEC),
[[Page 3770]]
(b) Any fiduciary of a participating client-plan or any duly
authorized representative of such fiduciary, and
(c) Any contributing employer to any participating client-plan
or any duly authorized employee representative of such employer;
(3) None of the persons described above in paragraphs (b)-(c) of
paragraph (2) are authorized to examine the trade secrets of MS&Co
or its affiliates or commercial or financial information which is
privileged or confidential.
Section III. Definitions.
For purposes of this proposed exemption,
(1) An ``affiliate'' of a person includes--
(a) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(b) Any officer, director, or partner, employee or relative (as
defined in section 3(15) of the Act) of such other person; and
(c) Any corporation or partnership of which such other person is
an officer, director or partner.
(2) The term ``control'' means the power to exercise a
controlling influence over the management or policies of a person
other than an individual.
Notice To Interested Persons
Notice of the proposed exemption will be mailed by first class mail
to each plan participating in securities lending arrangements with the
MS Broker-Dealers within 30 days of the publication of the notice of
pendency in the Federal Register. The notice will contain a copy of the
notice of proposed exemption as published in the Federal Register and a
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2).
The supplemental statement will inform interested persons of their
right to comment on and/or to request a hearing with respect to the
pending exemption. Written comments and hearing requests are due within
60 days of the publication of the proposed exemption the Federal
Register.
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 section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and 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 require, among other things, a fiduciary to
discharge his or her 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 requirements of section 401(a) of the Code that the plan
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act and section
4975(c)(1)(F) of the Code;
(3) Before an exemption can be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the plan
and of its participants and beneficiaries and protective of the rights
of participants and beneficiaries of the plan;
(4) This proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. 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
(5) This proposed exemption, if granted, is subject to the express
condition that the Summary of Facts and Representations set forth in
the notice of proposed exemption relating to PTE 96-14, as amended by
this notice, accurately describe, where relevant, the material terms of
the transactions to be consummated pursuant to this exemption.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemption to the address above,
within 30 days after the publication of this proposed exemption in the
Federal Register. All comments will be made a part of the record.
Comments received will be available for public inspection with the
referenced applications at the address set forth above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
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, August 10, 1990).
Section I. Covered Transactions
If the exemption is granted, the restrictions of sections
406(a)(1)(A) through (D) 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, effective March 12, 1996, to the lending of securities to Morgan
Stanley & Co. Incorporated (MS&Co) and to any other U.S. registered
broker-dealers affiliated with Morgan Stanley Trust Company (the
Affiliated Broker-Dealer; collectively, the MS Broker-Dealers) by
employee benefit plans with respect to which the MS Broker-Dealer who
is borrowing such securities is a party in interest or for which Morgan
Stanley Trust Company (MSTC) acts as directed trustee or custodian and
securities lending agent and to the receipt of compensation by MSTC in
connection with these transactions, provided that the following
conditions are met:
(1) Neither MS&Co nor MSTC will have any discretionary authority or
control over a client-plan's assets involved in the transaction or
renders investment advice (within the meaning of 29 CFR 2510.3-21(c))
with respect to those assets;
(2) The terms of each loan of securities by a client-plan to the MS
Broker-Dealer will be at least as favorable to such plan as those of a
comparable arm's length transaction between unrelated parties;
(3) Any arrangement for MSTC to lend plan securities to the MS
Broker-Dealers will be approved in advance by a plan fiduciary who is
independent of MSTC and the MS Broker-Dealers; \2\ (In this regard, the
independent fiduciary also will approve the general terms of the
securities loan agreement between the client-plan and the MS Broker-
Dealer, the specific terms of which will be negotiated and entered into
by MSTC which will act as a liaison between the lender and the borrower
to facilitate the lending transaction.)
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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 MSTC, 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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(4) A client-plan may terminate the arrangement at any time without
penalty on five business days notice;
(5) The client-plans will receive collateral consisting of cash,
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, bank letters of credit or other collateral
permitted under PTE
[[Page 3771]]
81-6 (46 FR 7527, January 23, 1981) or any successor, from the MS
Broker-Dealers by physical delivery, book entry in a securities
depository, wire transfer or similar means by the close of business on
or before the day the loaned securities are delivered to the MS Broker-
Dealers;
(6) The market value of the collateral will initially equal at
least 102 percent of the market value of the loaned securities and, if
the market value of the collateral falls below 100 percent, the MS
Broker-Dealers will deliver additional collateral on the following day
such that the market value of the collateral will again equal 102
percent;
(7) Prior to entering into a loan agreement, the MS Broker-Dealer
will furnish its most recent publicly-available audited and unaudited
financial statements to MSTC, which, in turn, will provide the
statements to the client-plan before the plan is asked to approve the
terms of the loan agreement. The loan agreement will contain a
requirement that the MS Broker-Dealer must promptly notify lenders 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, MSTC will not make
any further loans to the MS Broker-Dealer unless an independent
fiduciary of the client-plan approves the loan in view of the changed
financial condition;
(8) In return for lending securities, the client-plan either will--
(a) Receive a reasonable fee, which is related to the value of the
borrowed securities and the duration of the loan, or
(b) Have 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 the borrowing MS Broker-
Dealer, 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.)
(9) All procedures regarding the securities lending activities
will, at a minimum, conform to the applicable provisions of Prohibited
Transaction Exemption (PTE) 81-6 and PTE 82-63 (47 FR 14804, April 6,
1992);
(10) The MS Broker-Dealer will indemnify and hold harmless each
lending client-plan against any and all losses, damages, liabilities,
costs and expenses (including attorney's fees) incurred by such plan in
connection with the lending of securities to the MS Broker-Dealers;
(11) The client-plan will receive 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, or other distributions;
(12) Only plans with total assets having an aggregate market value
of at least $50 million will be permitted to lend securities to the MS
Broker-Dealers; provided, however that--
(a) In the case of two or more plans which are maintained by the
same employer, controlled group of corporations or employee
organization (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 the MS Broker-Dealers, 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, or
(b) In the case of two or more plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated 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 the MS
Broker-Dealers, 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 the fiduciary responsible for
making the investment decision on behalf of such group trust or other
entity--
(i) Is neither the sponsoring employer, a member of the controlled
group of corporations, the employee organization, nor an affiliate,
(ii) Has full investment responsibility with respect to plan assets
invested therein, and
(iii) 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 must be formed for the
sole purpose of making loans of securities.)
(13) No loan of securities will be made by MSTC as securities
lending agent to any MS Broker-Dealer on any day on which the market
value of the securities proposed to be loaned, when added to the market
value of all client-plan securities subject to outstanding loans to MS
Broker-Dealers, exceeds 50 percent of the market value of all client-
plan securities subject to securities loans, including the market value
of securities proposed to be loaned to the MS Broker-Dealer. (For
purposes of this paragraph, market value shall be determined in U.S.
dollars, based on the last preceding business day's closing prices of
the securities and the last preceding business day's closing foreign
exchange rates, if applicable.);
(14) With regard to the ``exclusive borrowing'' agreement, the MS
Broker-Dealer will directly negotiate the agreement with a plan
fiduciary who is independent of the MS Broker-Dealers and MSTC, and
such agreement may be terminated by either party to the agreement at
any time;
(15) Prior to any plan's approval of the lending of its securities
to an MS Broker-Dealer, a copy of this exemption (and the notice of
pendency) will be provided to the client-plan;
(16) Each client-plan will receive monthly reports with respect to
securities lending transactions so that an independent fiduciary of a
client-plan may monitor such transactions with the MS Broker-Dealer;
Section II. General Conditions
(1) MS Broker-Dealers will maintain, or cause to be maintained, for
a period of six years from the date of such transactions, in a manner
that is convenient and accessible for audit and examination, such
records as are necessary to enable the persons described in paragraph
(2) to determine whether the conditions of this exemption have been
met, except that --
(a) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the MS Broker-
Dealers, the records are lost or destroyed prior to the end of the six
year period, and
(b) No party in interest other than the MS Broker-Dealers 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
[[Page 3772]]
examination as required below by paragraph (2);
(2) Notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (1) 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 (the SEC),
(b) Any fiduciary of a participating client-plan or any duly
authorized representative of such fiduciary, and
(c) Any contributing employer to any participating client-plan or
any duly authorized employee representative of such employer;
(3) None of the persons described above in paragraphs (b)-(c) of
paragraph (2) are authorized to examine the trade secrets of MS&Co or
its affiliates or commercial or financial information which is
privileged or confidential.
Section III. Definitions
For purposes of this proposed exemption,
(1) An ``affiliate'' of a person includes--
(a) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(b) Any officer, director, or partner, employee or relative (as
defined in section 3(15) of the Act) of such other person; and
(c) Any corporation or partnership of which such other person is an
officer, director or partner.
(2) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
EFFECTIVE DATE: If granted, this proposed exemption will be effective
as of March 12, 1996.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations contained
in the application for exemption are true and complete and accurately
describe all material terms of the transactions. In the case of
continuing transactions, if any of the material facts or
representations described in the applications change, the exemption
will cease to apply as of the date of such change. In the event of any
such change, an application for a new exemption must be made to the
Department.
For a more complete statement of the facts and representations
supporting the Department's decision to grant PTE 96-14, refer to the
proposed exemption, grant notice and technical correction notice which
are cited above.
Signed at Washington, D.C., this 21st day of January, 1998.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 98-1789 Filed 1-23-98; 8:45 am]
BILLING CODE 4510-29-P
