[Federal Register Volume 64, Number 30 (Tuesday, February 16, 1999)]
[Notices]
[Pages 7667-7672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3563]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-07; Exemption Application No. D-
10372, et al.]
Grant of Individual Exemptions; Keystone Financial, Inc. and
Certain of Its Affiliates (Keystone), et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the Keystone Financial,
Inc. and Certain of Its Affiliates (Keystone) Located in Harrisburg,
Pennsylvania.
[Prohibited Transaction Exemption 99-07; Exemption Application No. D-
10372]
Exemption
Section I--Exemption for In-Kind Transfers of CIF Assets
The restrictions of sections 406(a) and 406(b) 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 (F) of the Code, shall not
apply to the in-kind transfers of assets of various employee benefit
plans for which Keystone served as a fiduciary (the Client Plans), that
were held in certain collective investment funds (CIFs) maintained by
Keystone, in exchange for shares of the KeyPremier Funds (the Funds),
an open-ended investment company registered under the Investment
Company Act of 1940 (the ICA), for which Keystone is an investment
adviser and may provide other services (i.e., Secondary Services, as
defined below in Section II(h)), which occurred on December 2, 1996,
February 3, 1997 and July 1, 1997,1 provided that the
following conditions were met:
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\1\ In this regard, Keystone represents that any further in-kind
transfers of CIF assets to the Funds will comply with the conditions
of Prohibited Transaction Exemption (PTE) 97-41 (62 FR 42830, August
8, 1997). PTE 97-41 permits the purchase by an employee benefit plan
(i.e. a Client Plan) of shares of one or more open-end management
investment companies (i.e mutual funds) registered under the ICA, in
exchange for assets of the Client Plan transferred in-kind to the
mutual fund from a collective investment fund (i.e. a CIF)
maintained by a bank or a plan adviser, where the bank or plan
adviser is the investment adviser to the mutual fund and also a
fiduciary to the Client Plan, if the conditions of the exemption are
met. However, as noted further below, Keystone distributed written
confirmation to the Client Plans regarding the in-kind transfer of
CIF assets made to the Funds within 120 days, rather than within the
105-day period required by Section I(g) of PTE 97-41. Thus, an
individual exemption to cover these specific CIF conversions is
necessary to provide the appropriate retroactive relief.
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(a) A fiduciary (the Second Fiduciary) who was acting on behalf of
each affected Client Plan and who was independent of and unrelated to
Keystone, as defined in Section II(g) below, received advance written
notice of the in-kind transfer of assets of the CIFs in exchange for
shares of the Fund and the disclosures described in paragraph (c)
below.
(b) On the basis of the information described in paragraph (c)
below, the Second Fiduciary provided prior
[[Page 7668]]
written authorization for the in-kind transfer of the Client Plan's CIF
assets in exchange for shares of the Funds, the investment of such
assets in corresponding portfolios of the Funds, and the fees to be
received by Keystone in connection with its services to the Fund. Such
authorization by the Second Fiduciary must have been consistent with
the responsibilities, obligations, and duties imposed on fiduciaries by
Part 4 of Title I of the Act.
(c) The Second Fiduciary who was acting on behalf of a Client Plan
received in advance of the investment by the Plan in any of the Funds,
a full and detailed written disclosure of information concerning the
Funds which included, but was not limited to:
(1) A current prospectus for each portfolio of each of the Funds in
which such Client Plan was considering investing;
(2) A statement describing the fees for investment management,
investment advisory, or other similar services, and any fees for
Secondary Services, as defined in Section II(h) below, including the
nature and extent of any differential between the rates of such fees;
(3) The reasons why Keystone considered such investments to be
appropriate for the Client Plan; and
(4) A statement describing whether there were any limitations
applicable to Keystone with respect to which assets of the Client Plan
may be invested in the Funds, and, if so, the nature of such
limitations.
(d) For each Client Plan, the combined total of all fees received
by Keystone for the provision of services to the Client Plan, and in
connection with the provision of services to any of the Funds in which
the Client Plans invested, was not in excess of ``reasonable
compensation'' within the meaning of section 408(b)(2) of the Act.
(e) Neither Keystone nor an Affiliate received any fees payable
pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection
with the transactions.
(f) All dealings between the Client Plans and any of the Funds were
on a basis no less favorable to such Plans than dealings between the
Funds and other shareholders holding the same class of shares as the
Client Plans.
(g) No sales commissions were paid by the Client Plans in
connection with the in-kind transfers of CIF assets in exchange for
shares of the Funds.
(h) The transferred assets constituted the Client Plan's pro rata
portion of all assets that were held by the CIF immediately prior to
the transfer.
(i) Following the termination of each CIF, each Client Plan
received shares of the Funds that had a total net asset value equal to
the Client Plan's pro rata share of the assets of the CIFs that were
exchanged for such Fund shares on the date of transfer.
(j) With respect to each in-kind transfer of CIF assets to a Fund,
each Client Plan received shares of the Fund which had a total net
asset value that was equal to the value of the Plan's pro rata share of
the assets of the corresponding CIF on the date of the transfer, based
on the current market value of the CIF's assets, as determined in a
single valuation performed in the same manner as of the close of the
same business day with respect to all such Plans participating in the
transaction on such day, using independent sources in accordance with
the procedures set forth by the Securities and Exchange Commission
(SEC) Rule 17a-7(b) under the ICA (Rule 17a-7) for the valuation of
such assets. Such procedures must have required that all securities for
which a current market price was not obtained by reference to the last
sale price for transactions reported on a recognized securities
exchange or NASDAQ 2 were to be valued based on an average
of the highest current independent bid and lowest current independent
offer, as of the close of business on the last business day prior to
the in-kind transfers, determined on the basis of reasonable inquiry
from at least three sources that are broker-dealers or pricing services
independent of Keystone.
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\2\ The National Association of Securities Dealers Automated
Quotation National Market System.
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(k) Not later than thirty (30) days after completion of each in-
kind transfer of CIF assets in exchange for shares of the Funds which
occurred on December 2, 1996, February 3, 1997, and July 1, 1997,
Keystone sent by regular mail to the Second Fiduciary, a written
confirmation which contained:
(i) The identity of each of the assets that was valued for purposes
of the transaction in accordance with SEC Rule 17a-7(b)(4) under the
ICA;
(ii) The price of each of the assets involved in the transaction;
and
(iii) The identity of each pricing service or market maker
consulted in determining the value of such assets.
(l) For each in-kind transfer of CIF assets, Keystone sent by
regular mail to the Second Fiduciary, no later than one-hundred and
twenty (120) days after completion of the asset transfer made in
exchange for shares of the Funds,3 a written confirmation
which contained:
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\3\ See Footnote 1 above.
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(1) The number of CIF units held by each affected Client Plan
immediately before the in-kind transfer, the related per unit value,
and the aggregate dollar value of the units transferred; and
(2) The number of shares in the Funds that were held by each
affected Client Plan immediately following the in-kind transfer, the
related per share net asset value, and the aggregate dollar value of
the shares received.
(m) Keystone maintains for a period of six (6) years the records
necessary to enable the persons, as described in paragraph (n) below,
to determine whether the conditions of the exemption have been, except
that:
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Keystone, the
records are lost or destroyed prior to the end of the six (6) year
period, and
(2) No party in interest, other than Keystone, 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 by paragraph (n) below.
(n)(1) Except as provided in paragraph (n)(2) and notwithstanding
any provisions of Section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (m) above are unconditionally available at
their customary location for examination during normal business hours
by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(ii) Any fiduciary of each of the Client Plans who has authority to
acquire or dispose of shares of any of the Funds owned by such Plan, or
any duly authorized employee or representative of such fiduciary; and
(iii) Any participant or beneficiary of the Client Plans or duly
authorized employee or representative of such participant or
beneficiary; and
(2) None of the persons described in paragraph (n)(1)(ii) and (iii)
of this Section I shall be authorized to examine trade secrets of
Keystone, or commercial or financial information which is privileged or
confidential.
Section II--Definitions
For purposes of this exemption,
(a) The term ``Keystone'' means Keystone Financial, Inc., and
affiliates, as defined in Section II(b)(1).
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries,
[[Page 7669]]
controlling, controlled by, or under common control with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``Fund'' or ``Funds'' means the KeyPremier Funds for
which Keystone served as investment adviser, and provided certain
``Secondary Services'' (as defined paragraph (h) below), for the Funds
that were involved in the in-kind transfers of CIF assets which
occurred on December 2, 1996, February 3, 1997, and July 1, 1997.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales of Fund shares, as calculated by
dividing the value of all securities, determined by a method as set
forth in a Fund's prospectus and statement of additional information,
and other assets belonging to each of the portfolios in such Fund, less
the liabilities charged to each portfolio, by the number of outstanding
shares.
(f) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(g) The term ``Second Fiduciary'' means a fiduciary of a Client
Plan who was independent of and unrelated to Keystone at the time of
the subject transaction. For purposes of this exemption, the Second
Fiduciary will not be deemed to have been independent of and unrelated
to Keystone if:
(1) Such Second Fiduciary was directly or indirectly controlled,
was controlled by, or was under common control with Keystone;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of such Second Fiduciary was an officer,
director, partner, or employee of Keystone (or is a relative of such
persons);
(3) Such Second Fiduciary directly or indirectly received any
compensation or other consideration for his or her own personal account
in connection with any transaction described in this exemption.
With respect to the Client Plans, if an officer, director, partner,
or employee of Keystone (or a relative of such persons), was a director
of such Second Fiduciary, and if he or she abstained from participation
in (i) the choice of the Plan's investment manager/advisor, (ii) the
approval of any purchase or sale by the Plan of shares of the Funds,
and (iii) the approval of any fees charged to or paid by the Plan, in
connection with any of the transactions described in Sections I above,
then Section II(g)(2) above shall not apply.
(h) The term ``Secondary Service'' means a service, other than an
investment management, investment advisory, or similar service, which
was provided by Keystone to the Funds involved in the subject
transaction, including but not limited to custodial, accounting,
administrative, brokerage or any other service.
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 November 25, 1998 at 63
FR 65249.
Effective Date: This exemption is effective as of December 2, 1996,
February 3, 1997 and July 1, 1997, for transactions described in
Section I.
For Further Information Contact: Ms. Janet L. Schmidt of the
Department, telephone (202) 219-8883. (This is not a toll-free number.)
Bankers Trust Company (BTC) Located in New York, New York
[Prohibited Transaction Exemption 99-08; Exemption Application Nos. D-
10592 through D-10594]
Exemption
The restrictions of section 406(a) 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 (D) of the Code, shall not apply to
(1) the proposed granting to BTC by certain employee benefit plans (the
Plans) investing in Hometown America L.L.C. (the LLC) of security
interests in the capital commitments of the Plans to the LLC, where BTC
is the representative of certain lenders (the Lenders) that will fund a
so-called ``credit facility'' providing loans to the LLC, and the
Lenders are parties in interest with respect to the Plans; and (2) the
proposed agreements by the Plans to honor capital calls made to the
Plans by BTC, in lieu of the LLC's sole managing member, in connection
with the Plan's capital commitments to the LLC where such capital calls
relate to the security interests in the capital commitments previously
granted to BTC; provided that (a) the proposed grants and agreements
are on terms no less favorable to the Plans than those which the Plans
could obtain in arm's-length transactions with unrelated parties; (b)
the decisions on behalf of each Plan to invest in the LLC and to
execute such grants and agreements in favor of BTC are made by a
fiduciary which is not included among, and is independent of and
unaffiliated with, the Lenders and BTC; and (c) with respect to Plans
that may invest in the LLC in the future, such Plans will have assets
of not less than $100 million, and not more than 5% of the assets of
such Plan will be invested in the LLC.
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 November 25, 1998 at 63
FR 65254.
Notice to Interested Persons: The applicant represents that it was
unable to comply with the notice to interested persons requirement
within the time frame stated in its application. However, the applicant
represents that it notified all interested persons, in the manner
agreed upon between the applicant and the Department, by December 18,
1998. Interested persons were notified that they had until January 17,
1999 to comment on the proposed exemption.
Written Comments: The only comment letter received by the
Department was filed by the applicant to clarify three items contained
in the Summary of Facts and Representations in the notice of proposed
exemption (the Summary).
First, the applicant notes that Representation 9 of the Summary
correctly states that some of the Lenders may be parties in interest
with respect to some of the Plans that invest in the LLC by virtue of
providing fiduciary services to such Plans. However, the applicant
wishes to also note that the Lenders may provide services other than
fiduciary services to such Plans.
Second, the applicant notes that Representation 9 of the Summary
also contains a reference to William M. Stephens (Mr. Stephens), who
was the Chief Investment Officer of Ameritech Corporation (Ameritech)
at the time of the application. However, the applicant states that Mr.
Stephens is no longer the Chief Investment Officer of Ameritech. Thus,
the applicant wishes to clarify that the use of the word ``currently''
in referring to Mr. Stephens acting in that capacity is no longer
correct.
Finally, in Representation 12 of the Summary, BTC represents that
the only direct relationship between any of the Members of the LLC and
any of the Lenders to the LLC is the execution of the Estoppel. The
Estoppel, as discussed earlier in the Summary, is an
[[Page 7670]]
acknowledgment by each Member that the LLC and the Manager have pledged
and assigned to BTC, for the benefit of each Lender, all of their
rights under the LLC Agreement relating to capital commitments and
capital calls of such Members. In this regard, the applicant wishes to
clarify that this absence of any direct relationship between the
Members and the Lenders is also true at the time of any investment by a
Plan in the LLC.
Accordingly, after consideration of the entire record, including
the applicant's comments, the Department has determined to grant the
exemption as proposed.
For Further Information Contact: Gary H. Lefkowitz of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
Bankers Trust Company (Bankers Trust) Located in New York, New York
[Prohibited Transaction Exemption 99-09; Application Number D-10644]
Exemption
Section I
The restrictions of section 406(a)(1)(A) through (D) and section
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to: (1) The sale
(the Sale) of fractional amounts of certain fixed-income instruments
(Fractional Amounts) to Bankers Trust and its affiliates by plans for
which Bankers Trust or its affiliates provide fiduciary or other
services (Client Plans), as well as employee benefit plans established
and maintained by Bankers Trust or its affiliates (BT Plans)
(collectively, the Plans); or (2) as an alternative to the Sale of the
Fractional Amounts (the Alternative), the receipt by the Plans from
Bankers Trust of cash equal to the amount that Bankers Trust or its
affiliates receive from the issuer of the fixed-income instrument in
lieu of the Fractional Amount, exclusive of transaction costs, plus
accrued interest, provided that the following conditions are met:
(a) Each Sale or Alternative involves a one time transaction for
cash;
(b) The terms of each Sale or Alternative are at least as favorable
to the Plan as those terms which would be available in an arm's-length
transaction with an unrelated party;
(c)(1) Under a Sale, the Plans receive an amount in cash which is
not less than the par value for each of the Fractional Amounts; or (2)
under the Alternative, the Plans receive cash equal to the amount
received by Bankers Trust from the issuer of the fixed-income security
in lieu of the Fractional Amount, exclusive of transaction costs, plus
accrued interest;
(d) In the case of the single Client Plans,
(1) Each Sale or Alternative is subject to the prior approval of an
independent plan fiduciary;
(2) The independent fiduciary of each Plan is furnished written
notice at least 60 days prior to the proposed Sale or Alternative
transaction, containing information relevant to the independent
fiduciary's determination whether to approve the Sale or Alternative
transaction. The notice will inform the independent fiduciary that
failure to respond within 45 days of receipt of the notice will
constitute authorization of Bankers Trust to engage in the transaction.
If the fixed-income instruments are not redenominated within a year of
provision of this notice, additional notice will be delivered to the
independent fiduciaries each year notifying them of their right to not
participate in this program;
(e) In the case of the Client Plans participating in collective
funds to which Bankers Trust serves as trustee or investment manager,
(1) Each Sale or Alternative transaction engaged in by the
collective fund is subject to the prior approval of each independent
plan fiduciary of participating Plans in the fund;
(2) The independent fiduciary of each Plan is furnished written
notice at least 60 days prior to the proposed Sale or Alternative
transaction, containing information relevant to the independent
fiduciary's determination whether to approve the Sale or Alternative
transaction or withdraw from the collective fund prior to the Sale or
Alternative. The notice will inform the independent fiduciary that
failure to respond within 45 days of receipt of the notice will
constitute authorization of the collective fund for which Bankers Trust
serves as trustee or investment manager to engage in the transaction.
If the fixed-income instruments are not redenominated within a year of
provision of this notice, additional notice will be delivered to the
independent fiduciaries each year notifying them of their right to
withdraw from the collective fund;
(f) In the case of the Plans, Bankers Trust must engage in the Sale
or Alternative within 30 days of the date that the Fractional Amounts
or the cash received by Bankers Trust from the issuers of the fixed-
income security in lieu of the Fractional Amounts are received from the
issuer;
(g) The Plans do not incur any commissions or other expenses
relating to the Sales or Alternatives; and
(h) (1) Bankers Trust or an affiliate maintains or causes to be
maintained within the United States, for a period of six years from the
date of such transaction, the records necessary to enable the persons
described in this section to determine whether the conditions of this
exemption have been met; except that a party in interest with respect
to an employee benefit plan, other than Bankers Trust or its
affiliates, shall not be subject to a civil penalty under section
502(i) of the Act or the taxes imposed by section 4975(a) or (b) of the
Code, if such records are not maintained, or are not available for
examination, as required by this section, and a prohibited transaction
will not be deemed to have occurred if, due to circumstances beyond the
control of Bankers Trust or its affiliates, such records are lost or
destroyed prior to the end of such six year period;
(2) The records referred to in subsection (1) above are
unconditionally available for examination during normal business hours
by duly authorized employees of (a) the Department, (b) the Internal
Revenue Service, (c) plan participants and beneficiaries, (d) any
employer of plan participants and beneficiaries, and (e) any employee
organization whose members are covered by such plan; except that none
of the persons described in (c) through (e) of this subsection shall be
authorized to examine trade secrets of Bankers Trust or its affiliates
or any commercial or financial information which is privileged or
confidential.
Section II. Definitions
(a) The term ``affiliate'' of Bankers Trust means any other bank or
similar financial institution directly or indirectly controlling,
controlled by, or under common control with Bankers Trust.
(b) The term ``Euro'' means the single European currency to be
introduced on January 1, 1999 in eleven Member States of the European
Union.4
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\4\ For purposes of reference, the Euro is slated to have a
conversion rate of 1 Euro equals 1 European Currency Unit (ECU). The
ECU is a basket of 12 European currencies that is frequently used
for inter-governmental and market transactions. Currently, the ECU
is worth less than one U.S. dollar.
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(c) The term ``Fractional Amount'' means, with respect to any
fixed-income instrument, an amount less than one Euro.
(d) The term ``independent plan fiduciary'' means a plan fiduciary
[[Page 7671]]
independent of Bankers Trust and any of its affiliates.
(e) The term ``par value'' means the face value of the fixed-income
instrument.
(f) The term ``Plan'' includes all employee benefit plans to which
Bankers Trust or an affiliate acts as a service provider, including a
fiduciary, and all plans established and maintained by Bankers Trust
and its affiliates, which have net assets of at least $25,000,000.
Effective Date: This exemption is effective for the period
beginning on January 1, 1999 and ending three years from the date on
which each country joining the European Economic and Monetary Union
converts to the Euro.
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 October 21, 1998, at 63
FR 56224.
Written Comments and Hearing Requests: The Department received one
written comment from the applicant with respect to the proposed
exemption. In the letter, the applicant raised several concerns
regarding the proposed exemption.
Bankers Trust represents that it has concerns regarding paragraph
(f) of Section I of the proposed exemption, which would not permit
Bankers Trust or its affiliates to serve as investment manager or
trustee with investment discretion with respect to assets involved in
the transaction. Bankers Trust believes that such a condition provides
no additional safeguards for Plans both advised and trusteed by Bankers
Trust. In fact, Bankers Trust states that it harms these Plans because
they will be forced to sell their fractional shares in the market,
thereby subjecting them to potential market discounts and transaction
costs. The applicant represents that the condition will lead to the
anomalous result that Plans trusteed by Bankers Trust but advised by
others will be ``made whole'' for fractional shares, while Plans both
advised and trusteed by Bankers Trust, to whom arguably an even greater
duty is owed, will be the only Plans suffering adverse consequences in
the market associated with the fractional shares resulting from
conversion to the Euro. The Department agrees with the foregoing and
has decided to delete this condition from the grant of the exemption.
In addition, Bankers Trust clarified the procedures for opting out
of the transaction by Plans participating in collective funds sponsored
by Bankers Trust. Bankers Trust states that if there is such an
objection by a Plan participating in a collective fund, the Plan will
be given the opportunity to withdraw from the collective fund prior to
the Sale or Alternative. Following notice of the prospective Sale or
Alternative by the fund, Plan fiduciaries which do not object within 45
days of such notice will be deemed to have approved the transaction.
Bankers Trust states that it has already provided notice of the
transaction to all of its trust, collective trust, and managed accounts
with notice of the Sale or Alternative and a copy of the proposed
exemption. In this regard, the Department has modified the language of
paragraph (d) of the proposal and added a new paragraph (e) to provide
for transactional approval by independent fiduciaries of single Client
Plans and Client Plans invested in collective funds. Further, paragraph
(e) as it appeared in the proposed exemption has been redesignated as
paragraph (f) in the grant.
Finally, Bankers Trust alerted the Department to two developments
that have occurred in the markets participating in Euro since the
proposed exemption appeared in the Federal Register. First, the
applicant originally believed that all of the markets participating in
Euro would move to a Euro-only environment beginning on January 1,
1999. While that continues to be true of nine of the eleven countries
converting to Euro, Ireland will permit legacy currency or Euro
currency instructions until January 8, 1999, and the Netherlands will
permit legacy currency or Euro currency instructions throughout the
entire three-year transition period. Second, France and the Netherlands
have decided to use a variation on the redenomination process described
in the proposal. Instead of issuing fractional shares, France and the
Netherlands have directed that financial instruments will be
redenominated to whole Euros, with the value of the fractional share
compensated with cash. Because it appears that the cost of transferring
the cash value of the fractional share from a subcustodian to a Plan's
account will exceed the value of that amount, Bankers Trust states that
it will credit client accounts with the conversion price of the
Fractional Amount, plus accrued interest exclusive of transaction
costs, as a service to its clients. In addition, Bankers Trust states
that it will credit the value paid by the issuer, regardless of whether
it actually receives that amount because of transaction costs, to the
extent that any issuers in the future specify a different method for
dealing with fractional shares. In this regard, the Department is
modifying Section I of the proposed exemption, which proposed relief
for the Sale of the Fractional Amounts by Client Plans and BT Plans to
Bankers Trust or its affiliates to include an alternative transaction
(the Alternative). The Alternative transaction will be the receipt by
the Plans from Bankers Trust of cash amounts that Bankers Trust
receives from the issuer of the fixed-income instrument from which the
fractional amount is derived, exclusive of transaction costs, plus
accrued interest. Further, the Department is modifying paragraph (c) of
Section I as it appeared in the proposed exemption to state as follows:
(c) (1) Under a Sale, the Plans receive an amount in cash which is
not less than the par value for each of the Fractional Amounts; or (2)
under the Alternative, the Plans receive cash equal to the amount
received by Bankers Trust from the issuer of the fixed-income security
in lieu of the Fractional Amount, exclusive of transaction costs, plus
accrued interest.
The Department received no other written comments, nor any requests
for a hearing. Accordingly, the Department has determined to grant the
exemption as modified.
For Further Information Contact: Contact James Scott Frazier of the
Department, phone number (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
[[Page 7672]]
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 9th day of February, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 99-3563 Filed 2-12-99; 8:45 am]
BILLING CODE 4510-29-P
