33716 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

including the validity of the

methodology and assumptions used;

• Enhance the quality, utility, and

clarity of the information to be

collected; and

• Minimize the burden of the

collection of information on those who

are to respond, including the use of

appropriate automated, electronic,

mechanical, or other technological

collection techniques or other forms of

information technology (for example,

permitting electronic submissions of

responses).

DATES: Written comments must be

submitted on or before August 18, 1998.

ADDRESSES: Comments are to be

submitted to the Docket Office, Docket

ICR–98–15, U.S. Department of Labor,

Room N–2625, 200 Constitution

Avenue, NW, Washington, DC 20210,

(202) 219–7894. Written comments

limited to 10 pages or less may be

transmitted by facsimile to (202) 219–

5046.

FOR FURTHER INFORMATION CONTACT: Mr.

Laurence Davey, Directorate of

Construction, Occupational Safety and

Health Administration, U.S. Department

of Labor, Room N3621, 200 Constitution

Avenue, NW., Washington, DC 20210,

(202) 219–7207. A copy of the

referenced information collection

request is available for inspection and

copying in the Docket Office and will be

mailed to persons who request copies by

telephoning Mr. Davey at (202) 219–

7207 or Barbara Bielaski at (202) 219–

8076. For electronic copies of the

information collection request, contact

OSHA’s Web Page on Internet at http:/

/www.osha-slc.gov (click on

Information Collection Requests).

SUPPLEMENTARY INFORMATION:

Background

The Occupational Safety and Health

Administration (OSHA) currently has

approval from the Office of Management

and Budget (OMB) for the information

collection requirement contained in 29

CFR 1926.550(a)(11). That approval will

expire on September 30, 1998, unless

OSHA applies for an extension of the

OMB approval. This notice initiates the

process for OSHA to request an

extension of the current OMB approval.

The provision requires employees to

keep a record of oxygen and toxic gas

tests made when internal combustion

engines of construction cranes or

derricks exhaust into enclosed

workspaces.

Current Action

The notice requests an extension of

the current OMB approval of the

paperwork requirements in 29 CFR

1926.550(a)(11).

Type of Review: Extension of existing

approval.

Agency: Occupational Safety and

Health Administration, U.S. Department

of Labor.

Title: Construction Oxygen and Toxic

Gas Test.

OMB Number: 1218–0054.

Agency Number: Docket No. ICR–98–

15.

Affected Public: Business or other forprofit.

Number of Respondents: 50.

Frequency: Daily.

Average Time Per Response: 2

minutes.

Total Burden Hours: 100.

Comments submitted in response to

this notice will be summarized and

included in the request of Office of

Management and Budget approval of the

information collection (record) request;

they will also become a matter of public

record.

Signed this 15th day of June 1998.

Charles N. Jeffress,

Assistant Secretary of Labor.

[FR Doc. 98–16386 Filed 6–18–98; 8:45 am]

BILLING CODE 4510–26–M

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10327, et al.]

Proposed Exemptions; Lehman

Brothers, Inc.

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of proposed exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions 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).

Written comments and hearing

requests: All interested persons are

invited to submit written comments or

request for a hearing on the pending

exemptions, unless otherwise stated in

the Notice of Proposed Exemption,

within 45 days from the date of

publication of this Federal Register

Notice. Comments and requests for a

hearing should state: (1) the name,

address, and telephone number of the

person making the comment or request,

and (2) the nature of the person’s

interest in the exemption and the

manner in which the person would be

adversely affected by the exemption. A

request for a hearing must also state the

issues to be addressed and include a

general description of the evidence to be

presented at the hearing.

ADDRESS: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, N.W.,

Washington, D.C. 20210. Attention:

Application No. llll, stated in each

Notice of Proposed Exemption. The

applications for exemption and the

comments received will be available for

public inspection in the Public

Documents Room of Pension and

Welfare Benefits Administration, U.S.

Department of Labor, Room N–5507,

200 Constitution Avenue, N.W.,

Washington, D.C. 20210.

Notice to interested persons: Notice of

the proposed exemptions will be

provided to all interested persons in the

manner agreed upon by the applicant

and the Department within 15 days of

the date of publication in the Federal

Register. Such notice shall include a

copy of the notice of proposed

exemption as published in the Federal

Register and shall inform interested

persons of their right to comment and to

request a hearing (where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

4975(c)(2) of the Code, and in

accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR

32836, 32847, 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. Therefore, these notices of

proposed exemption are issued solely

by the Department.

The applications contain

representations with regard to the

proposed exemptions which are

summarized below. Interested persons

are referred to the applications on file

with the Department for a complete

statement of the facts and

representations.
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33717

1When LBTC acts as sub-agent, rather than the

primary lending agent, the primary lending agent is

receiving no section 406(b) of the Act relief herein.

In such situations, the primary lending agent may

be provided relief by Prohibited Transaction Class

Exemption (PTE) 81–6 and PTE 82–63. PTE 81–6

was published at 46 FR 7527, January 23, 1981, as

amended at 52 FR 18754, May 19, 1987, and PTE

82–63 was published at 47 FR 14804, April 6, 1982.

2The Department notes that this proposed

exemption would provide relief from the

restrictions of section 406(a) as well as section

406(b)(1) and (b)(2) of the Act, whereas PTE 81–6

provides relief only for securities lending

transactions which would violate section 406(a) of

the Act. Thus, any amendments that may be made

by the Department to PTE 81–6 which would

permit different types of assets to be used as

collateral for a securities loan would not allow the

use of such assets as collateral under this proposed

exemption to the extent that the transactions

covered by this exemption (if granted) would

require relief from section 406(b) of the Act.

Lehman Brothers Inc. (Lehman) and

Lehman Brothers Trust Company and

Affiliates (LBTC) Located in New York,

New York

[Application No. D–10327]

Proposed Exemption

The Department is considering

granting an 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, 32847, August 10, 1990.) If

the exemption is granted, the

restrictions of sections 406(a), 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 lending of

securities to Lehman or to any other

U.S. registered broker-dealer who is an

affiliate of Lehman (collectively,

Lehman Broker-Dealers) by employee

benefit plans, including commingled

investment funds holding plan assets

(the Client Plans), with respect to which

the Lehman Broker-Dealer is a party in

interest, or for which LBTC or any other

affiliate of Lehman, acts as directed

trustee or custodian and/or securities

lending agent (or sub-agent) for such

Client Plan; and (2) the receipt of

compensation by LBTC in connection

with these transactions, provided that

the following conditions are met:

1. Neither the Lehman Broker-Dealers

nor LBTC 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 investment of cash

collateral after the securities have been

loaned and collateral received), or

renders investment advise (within the

meaning of 29 CFR 2510.3–21(c)) with

respect to those assets, including

decisions concerning a Client Plan’s

acquisition or disposition of securities

available for loan;

2. Before a Client Plan participates in

a securities lending program and before

any loan of securities to the Lehman

Broker-Dealers is affected, a Client Plan

fiduciary who is independent of LBTC

and the Lehman Broker-Dealers must

have:

(a) Authorized and approved a

securities lending authorization

agreement with LBTC (the Agency

Agreement), where LBTC is acting as the

direct securities lending agent;

(b) Authorized and approved the

primary securities lending authorization

agreement (the Primary Lending

Agreement) with the primary lending

agent, where LBTC is lending securities

under a sub-agency arrangement with

the primary lending agent;1

(c) Approved the general terms of the

securities loan agreement (the Basic

Loan Agreement) between such Client

Plan and the borrower, the Lehman

Broker-Dealers, the specific terms of

which are negotiated and entered into

by LBTC;

3. A Client Plan may terminate the

securities lending agency agreement at

any time without penalty on five (5)

business days notice, whereupon the

Lehman Broker-Dealers shall deliver

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 plan within (a) the

customary delivery period for such

securities, (b) five (5) business days, or

(c) the time negotiated for such delivery

by the Client Plan and the Lehman

Broker-Dealers, whichever is less;

4. LBTC (or another custodian on

behalf of the Client Plan) will receive

from the Lehman Broker-Dealers either

by physical delivery, book entry in a

securities depository, wire transfer or

similar means collateral consisting of

U.S. dollars, securities issued or

guaranteed by the U.S. Government or

its agencies or irrevocable U.S. bank

letters of credit (issued by an entity

other than the Lehman Broker-Dealers)

or other collateral permitted under

Prohibited Transaction Exemption (PTE)

81–6 (as amended from time to time or,

alternatively, any additional or

superceding class exemption that may

be issued to cover securities lending by

employee benefit plans) 2 by the close of

business on or before the day the loaned

securities are delivered to the Lehman

Broker-Dealers;

5. The market value of the collateral

will initially equal at least 102 percent

of the market value of the loaned

securities. If the market value of the

collateral on the close of trading on a

business day falls below 100 percent of

the market value of the borrowed

securities at the close of business on

that day, the Lehman Broker-Dealers

will deliver additional collateral on the

following day such that the market

value of the collateral will again equal

102 percent. The Basic Loan Agreement

will give the Client Plans a continuing

security interest in, and a lien on, the

collateral. LBTC will monitor the level

of the collateral daily;

6. All the procedures regarding the

securities lending activities will at a

minimum conform to the applicable

provisions of PTE 81–6 and PTE 82–63;

7. In the event the Lehman BrokerDealer fails to return securities within a

designated time, the Client Plan will

have the right under the Basic Loan

Agreement to purchase securities

identical to the borrowed securities and

apply the collateral to payment of the

purchase price. If the collateral is

insufficient to satisfy the Lehman

Broker-Dealer’s obligation to return the

Client Plan’s securities, the Lehman

Broker-Dealer will indemnify the Client

Plan with respect to the difference

between the replacement cost of

securities and the market value of the

collateral on the date the loan is

declared in default, together with

expenses incurred by the Client Plan

plus applicable interest at a reasonable

rate, including any attorneys fees

incurred by the Client Plan for legal

action arising out of default on the

loans, or failure by the Lehman BrokerDealer to properly indemnify the Client

Plan;

8. The Client Plan will receive the

equivalent of all distributions made to

the 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;

9. Only Client Plans with total assets

having an aggregate market value of at

least $50 million are permitted to lend

securities to the Lehman Broker-Dealers;

provided, however, that—

(a) In the case of two or more Client

Plans which are maintained by the same

employer, controlled group of

corporations or employee organization

(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 the Lehman BrokerDealers, the foregoing $50 million
33718 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

3The termination will be without penalty to the

Client Plan, except for the return to the Lehman

Broker-Dealers of a part of any flat fee paid by the

Lehman Broker-Dealers to the Client Plan, if the

Client Plan has terminated its exclusive borrowing

agreement with the Lehman Broker-Dealers.

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.

(b) In the case of two or more Client

Plans which are not maintained by the

same employer, controlled group of

corporations or employee organization

(the Unrelated Client Plans), whose

assets are commingled for investment

purposes in a group trust or any other

form of entity the assets of which are

‘‘plan assets’’ under the Plan Asset

Regulation, which entity is engaged in

securities lending arrangements with

the Lehman Broker-Dealers, the

foregoing $50 million requirement is

satisfied if such trust or other entity has

aggregate assets which are in excess of

$50 million (excluding the assets of any

Plan with respect to which the fiduciary

responsible for making the investment

decision on behalf of such group trust

or other entity or any member of the

controlled group of corporations

including such fiduciary is the

employer maintaining such Plan or an

employee organization whose members

are covered by such Plan). However, the

fiduciary responsible for making the

investment decision on behalf of such

group trust or other entity—

(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.)

10. With respect to any calendar

quarter, at least 50 percent or more of

the outstanding dollar value of

securities loans negotiated on behalf of

Client Plans will be to unrelated

borrowers.

11. The terms of each loan of

securities by the Client Plans to the

Lehman Broker-Dealer will be at least as

favorable to such plans as those terms

which would exist in a comparable

arm’s-length transaction between

unrelated parties;

12. Each Client Plan will receive

monthly reports on the transactions, so

that an independent fiduciary of such

plan may monitor the securities lending

transactions with the Lehman BrokerDealer;

13. Before entering into the Basic

Loan Agreement and before a Client

Plan lends any securities to the Lehman

Broker-Dealer, an independent fiduciary

of such Client Plan will receive

sufficient information, concerning the

financial condition of the Lehman

Broker-Dealer, including the audited

and unaudited financial statements of

the Lehman Broker-Dealer;

14. The Lehman Broker-Dealer will

provide to a Client Plan prompt notice

at the time of each loan by such plan of

any material adverse changes in the

Lehman Broker-Dealer’s financial

condition, since the date of the most

recently furnished financial statements;

15. With regard to the ‘‘exclusive

borrowing’’ agreement (as described

below), the Lehman Broker-Dealer will

directly negotiate the agreement with a

Client Plan fiduciary who is

independent of the Lehman BrokerDealers and LBTC, and such agreement

may be terminated by either party to the

agreement at any time; 3

16. The Client Plan: (a) receives a

reasonable fee that is related to the

value of the borrowed securities and the

duration of the loan, or (b) 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 the Lehman Broker-Dealer,

if such fee is not greater than the fee the

Client Plan would pay an unrelated

party in an arm’s length transaction;

17. In the event that a Lehman BrokerDealer is also the securities lending

agent for a Client Plan, LBTC shall act

as securities lending sub-agent in

connection with any loan of securities

to the Lehman Broker-Dealer;

18. Prior to the Client Plan’s approval

of the lending of its securities to the

Lehman Broker-Dealers, a copy of the

exemption, if granted, (and this notice

of pendency) will be provided to the

Client Plan; and

19. Lehman maintains or causes to be

maintained within the United States for

a period of six years from the date of

such transaction such records as are

necessary to enable the persons

described in paragraph (20) below 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

Lehman or the Lehman Broker-Dealers,

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

Lehman or the Lehman Broker-Dealers,

such records are lost or destroyed prior

to the end of such six year period;

20. (i) Except as provided in

subparagraph (ii) of this paragraph (20)

and notwithstanding any provisions of

subsections (a)(2) and (b) of section 504

of the Act, the records referred to in

paragraph (19) are unconditionally

available at their customary location for

examination during normal business

hours by—

(a) Any duly authorized employee or

representative of the Department, the

Internal Revenue Service, or the

Securities and Exchange Commission,

(b) Any fiduciary of a Client Plan or

any duly authorized representative of

such fiduciary,

(c) Any contributing employer to any

Client Plan, or any duly authorized

employee or representative of such

employer, and

(d) Any participant or beneficiary of

any Client Plan, or any duly authorized

representative of such participant or

beneficiary.

(ii) None of the persons described in

subparagraphs (b)–(d) of this paragraph

(20) shall be authorized to examine

trade secrets of Lehman or the Lehman

Broker-Dealers, or commercial or

financial information which is

privileged or confidential.

Summary of Facts and Representations

1. Lehman, a Delaware corporation, is

the principal operating subsidiary of

Lehman Brothers Holdings Inc. (LB

Holdings), also a Delaware corporation.

Lehman is one of the largest full-line

investment service firms in the United

States, and is registered with and

regulated by the Securities and

Exchange Commission (SEC). Lehman is

a member of the New York Stock

Exchange and other principal securities

exchanges in the United States, and is

also a member of the National

Association of Securities Dealers, Inc.

As of November 30, 1995, Lehman had

$82.6 billion in assets.

2. Lehman and the Lehman BrokerDealers acting as principals, borrow

securities from institutions and either

utilize such securities to satisfy their

own needs, or re-lend these securities to

borrowing brokerage firms and other
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33719

4Future references to LBTC’s performance of

services as securities lending agent should be

deemed to include its parallel performance as a

securities lending sub-agent, and references to the

Client Plans should be deemed to include those

plans for which LBTC is acting as a sub-agent with

respect to securities lending activities, unless

otherwise specifically indicated or by the context of

reference.

5PTE 81–6 (46 FR 7527, January 23, 1981, as

amended at 52 FR 18754, May 19, 1987) provides

an exemption under certain conditions from section

406(a)(1)(A) through (D) of the Act and the

corresponding provisions of section 4975(c) of the

Code for the lending of securities that are assets of

an employee benefit plan to certain broker-dealers

or banks which are parties in interest. However,

condition 1 of PTE 81–6 requires, in part, that

neither the borrower nor an affiliate of the borrower

has discretionary authority or control with respect

to the investment of the plan assets involved in the

transaction.

PTE 82–63 (47 FR 14804, April 6, 1982) provides

an exemption under specified conditions from

section 406(b)(1) of the Act and section

4975(c)(1)(E) of the Code for the payment of

compensation to a plan fiduciary for services

rendered in connection with loans of plan assets

that are securities. PTE 82–63 permits the payment

of compensation to a plan fiduciary for the

provision of securities lending services only if the

loan of securities itself is not prohibited under

section 406(a) of the Act.

entities which need a particular security

for certain periods of time. Borrowers

often need securities to satisfy deliveries

in cases of short sales, or where a broker

fails to receive securities it is required

to deliver. Lehman Broker-Dealers

borrow and lend approximately $50

billion of securities on an average daily

basis, and are among the largest

institutional securities borrowers and

lenders in the United States. In making

such loans, the Lehman Broker-Dealers

carefully review the credit-worthiness of

its counterparties.

3. LBTC is an affiliate of Lehman, and

is a wholly owned subsidiary, organized

and chartered by LB Holdings as a

limited purpose trust company under

the laws of the State of New York. LBTC

has its principal executive offices in

New York, New York. LBTC provides a

variety of services to its clients,

including custodial services and

securities lending services as a direct

securities lending agent. LBTC may also

be retained from time to time by

primary securities lending agents to

provide securities lending services in a

sub-agent capacity with respect to

portfolio securities of clients of such

primary securities lending agents. As a

securities lending sub-agent, LBTC’s

role (i.e., negotiating the terms of the

loans with borrowers pursuant to a

client-approved form of a loan

agreement, and monitoring receipt of,

and marking-to-market, the required

collateral) parallels those under the

lending transactions for which LBTC

acts as a primary lending agent on

behalf of its clients.

4. An institutional investor, such as a

pension fund, lends securities in its

portfolio to a broker-dealer or a bank to

earn a fee in addition to any interest,

dividends, or other distributions paid

on the loaned securities. The lender

generally requires that the security loans

be fully collateralized, and the collateral

usually is cash or high quality liquid

securities issued by the U.S.

Government, or Federal Agency

obligations or certain bank letters of

credit. When the collateral is cash, the

lender generally invests the cash and

rebates a portion of the earnings on such

collateral to the borrower. The fee

received by the lender is the difference

between the earnings on the collateral

and the amount of the rebate that is paid

to the borrower. When a securities loan

is collateralized with U.S. Government

or Federal Agency securities or with

letters of credit issued by a bank, the fee

is paid directly by the borrower to the

lender.

Institutional investors often utilize the

services of an agent in performing

securities lending transactions. The

lending agent is paid a fee for its

services which may be a percentage of

the income earned by the investor from

lending its securities. The applicants

represent that the essential functions

which define a securities lending agent

are identifying appropriate borrowers of

securities and negotiating loan terms to

the borrowers. Certain services which

are ancillary to securities lending

include monitoring the level of

collateral, the value of loaned securities,

and in some instances, investing the

collateral.

5. LBTC and Lehman request an

exemption for the lending of securities

owned by the Client Plans, with respect

to which the Lehman Broker-Dealer is a

party in interest, or for which LBTC will

serve as directed trustee or custodian

and/or securities lending agent (or subagent),4 following disclosure to the

Client Plans of LBTC’s affiliation with

the Lehman Broker-Dealer, under either

of the two arrangements described as

Plan A and Plan B, and for receipt of

compensation by LBTC in connection

with such transactions. Neither LBTC

nor the Lehman Broker-Dealers will

have discretionary authority or control

over the Client Plans’ decisions

concerning the acquisition or

disposition of securities available for

lending. However, because LBTC under

the Plan A arrangement and the Lehman

Broker-Dealers under the Plan B

arrangement (as discussed further

below), will have discretion with

respect to whether there is a loan of the

Client Plan securities to the Lehman

Broker-Dealers, the lending of securities

to the Lehman Broker-Dealers under

such arrangements may be outside the

scope of relief provided by PTE 81–6

and PTE 82–63.5

6. When a loan of securities by a

Client Plan is collateralized with cash,

LBTC, at the Client Plan’s direction, will

either transfer such cash collateral to the

Client Plan or its designated agent for

investment. Alternatively, LBTC may

invest the cash in short-term securities

or interest-bearing accounts. In either

case, LBTC will rebate a portion of the

earnings on the cash collateral to the

Lehman Broker-Dealers on behalf of the

Client Plan. The Lehman Broker-Dealers

will pay a fee to the Client Plan based

on the value of the loaned securities

where the collateral consists of

obligations other than cash. Under the

Plan A arrangement and, in some

instances, under the Plan B arrangement

(see paragraph 24 for the types of

lending services which may be provided

to the Client Plans by LBTC under Plan

B arrangement), the Client Plan will pay

a fee to LBTC for providing lending

services to the Client Plan, which will

reduce the income earned by the Client

Plan from lending its securities to the

Lehman Broker-Dealers. The Client Plan

and LBTC will agree in advance to this

fee, which will represent a percentage of

the income the Client Plan earns from

its lending activities.

Several safeguards, described more

fully below, are incorporated into the

application to ensure the protection of

the Client Plans’ assets involved in

these securities lending transactions. In

addition, the applicants represent that

both the Plan A and Plan B

arrangements described herein

incorporate the relevant conditions

contained in PTE 81–6 and PTE 82–63.

7. Plan A. Where LBTC is the direct

securities lending agent, a fiduciary of a

Client Plan who is independent of LBTC

and the Lehman Broker-Dealers will

sign a securities lending agency

agreement (the Agency Agreement) with

LBTC before the Client Plan participates

in the LBTC securities lending program.

The Agency Agreement will, among

other things, describe the operation of

the lending program, prescribe the form

of the securities loan agreement to be

entered into on behalf of the Client Plan

with the borrowers, identify the

securities which are available to be lent,

required collateral and daily marking-tomarket, and provide the list of

permissible borrowers, including the

Lehman Broker-Dealers. The Agency

Agreement will also set forth the basis

and rate for LBTC’s compensation from

the Client Plan for the performance of

securities lending services. The Client
33720 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

Plan may terminate the Agency

Agreement at any time, without penalty,

on no more than five business days’

notice.

8. The Agency Agreement will

contain provisions regarding

designation by the Client Plan of the

Lehman Broker-Dealer as an approved

borrower. Specifically, the Client Plan

will acknowledge that the Lehman

Broker-Dealer is an affiliate of LBTC.

Pursuant to the Agency Agreement,

LBTC will represent to the Client Plan

that each loan made to the Lehman

Broker-Dealer on behalf of the Client

Plan will be at market rates, and in no

event less favorable to the Client Plan

than a loan of such securities, made at

the same time and under the same

circumstances, to an unaffiliated

borrower.

9. When LBTC is lending securities

under a sub-agency arrangement, the

primary lending agent will enter into a

securities lending agency agreement (the

Primary Lending Agreement) with a

fiduciary of the Client Plan, who is

independent of such primary lending

agent, LBTC and the Lehman BrokerDealers, before the Client Plan

participates in the securities lending

program. Except as set forth in

paragraph 10 below, the primary

lending agent will be unaffiliated with

LBTC and the Lehman Broker-Dealers.

The Primary Lending Agreement will

contain substantive provisions akin to

those in the Agency Agreement

described above, relating to the

description of the operation of the

lending program, use of an approved

form of securities loan agreement,

identification of securities which are

available to be lent, required collateral

and daily marking-to-market, and

provision of a list of approved

borrowers (which will include the

Lehman Broker-Dealers). The Primary

Lending Agreement will specifically

authorize the primary lending agent to

appoint sub-agents, including LBTC, to

facilitate its performance of securities

lending agency functions. Where LBTC

is to act as a sub-agent, the Primary

Lending Agreement will expressly

disclose that LBTC is to so act. The

Primary Lending Agreement will also

set forth the basis and rate for the

primary lending agent’s compensation

from the Client Plan for the performance

of securities lending services, and will

authorize the primary lending agent to

pay a portion of its fee, as the primary

lending agent determines in its sole

discretion, to any sub-agent(s) it retains

pursuant to the authority granted under

such agreement. The Client Plan may

terminate the Primary Lending

Agreement at any time, without penalty,

on no more than five business days’

notice.

Pursuant to its authority to appoint

sub-agents, the primary lending agent

will enter into a securities lending subagency agreement (the Sub-Agency

Agreement) with LBTC under which the

primary lending agent will retain and

authorize LBTC, as sub-agent, to lend

securities of the primary lending agent’s

clients, subject to the same terms and

conditions as are specified in the

Primary Lending Agreement. Thus, for

example, the form of basic loan

agreement (described in paragraph 12

below) will be the same as that

approved by the Client Plan fiduciary in

the Primary Lending Agreement, and

the list of permissible borrowers under

the Sub-Agency Agreement (which will

include the Lehman Broker-Dealers)

will be limited to those approved

borrowers listed as such under the

Primary Lending Agreement.

The Sub-Agency Agreement will

contain provisions which are in

substance comparable to those

described in paragraphs 7 and 8 above,

which would appear in the Agency

Agreement in situations where LBTC is

the primary lending agent. In this

regard, LBTC will make the same

representation in the Sub-Agency

Agreement as described in paragraph 8

above with respect to arm’s-length

dealings with the Lehman BrokerDealers. The Sub-Agency Agreement

will also set forth the basis and rate for

LBTC’s compensation to be paid by the

primary lending agent.

10. Lehman has been informed that

some Client Plans will not be able to

hire LBTC as direct securities lending

agent, because under the provisions of

that Plan any such agent for such Client

Plans is required to be registered as a

broker-dealer with the Securities and

Exchange Commission (SEC). In these

cases, the applicants propose that a

Lehman Broker-Dealer, which is

registered as a broker-dealer with the

SEC, will act as a primary lending agent

and LBTC will act as sub-agent. In other

respects the sub-agency relationship

will operate as set forth in paragraph (9)

above.

11. In all cases, LBTC will maintain

transactional and market records

sufficient to assure compliance with its

representation that all loans to the

Lehman Broker-Dealers are effectively at

arms-length terms. Such records will be

provided to the Client Plan fiduciary,

who is independent of LBTC and the

Lehman Broker-Dealers, in the manner

and format agreed to by the Client Plan

fiduciary and LBTC, without charge to

the Client Plan.

12. LBTC, under the Agency

Agreement, as securities lending agent

for the Client Plans, will negotiate a

master securities borrowing agreement

with a schedule of modifications

attached thereto (the Basic Loan

Agreement) with the Lehman BrokerDealers on behalf of the Client Plans. An

independent fiduciary of the Client Plan

will approve the form of the Basic Loan

Agreement before such fiduciary

executes the Agency Agreement. The

Basic Loan Agreement will specify,

among other things, the right of the

Client Plan to terminate a loan at any

time and the Client Plan’s rights in the

event of any default by the Lehman

Broker-Dealers. The Basic Loan

Agreement will set forth the basis for

compensation to the Client Plan for

lending securities to the Lehman

Broker-Dealers under each category of

collateral. The Basic Loan Agreement

will also contain a requirement that the

Lehman Broker-Dealers must pay all

transfer fees and transfer taxes related to

the security loans.

13. Prior to making any loans under

the Basic Loan Agreement, the Lehman

Broker-Dealers will furnish its most

recent available audited and unaudited

financial statements to LBTC (assuming

LBTC does not already possess such

statements), which, in turn, will provide

such statements to the Client Plan

before the independent fiduciary of the

Client Plan is asked to approve the

terms of the Basic Loan Agreement. The

terms of the Basic Loan Agreement will

contain a requirement that the Lehman

Broker-Dealer must give prompt notice

at the time of the 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,

LBTC will request that the independent

fiduciary of the Client Plan approve the

loan in view of the changed financial

condition.

14. As noted above, the agreement by

LBTC to provide securities lending

services, as agent, to a Client Plan will

be embodied in the Agency Agreement.

The Client Plan and LBTC will agree to

an arrangement under which LBTC will

be compensated for its services as the

lending agent prior to the

commencement of any lending activity.

Similarly, with respect to arrangements

under which LBTC is acting as

securities lending sub-agent, the agreed

upon fee arrangement of the primary

lending agent will be set forth in the

Primary Lending Agreement, and such

agreement will specifically authorize

the primary lending agent to pay a

portion of such fee, as the primary

lending agent determines in its sole
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33721

6The foregoing provisions describe arrangements

comparable to conditions (c) and (d) of PTE 82–63

which require that the payment of compensation to

a ‘‘lending fiduciary’’ is made under a written

instrument and is subject to prior written

authorization of an independent ‘‘authorizing

fiduciary.’’ In the event that a commingled

investment fund will participate in the securities

lending program, the special rule applicable to such

funds concerning the authorization of the

compensation arrangement set forth in paragraph (f)

of PTE 82–63 will be satisfied.

7LBTC will adopt minimum daily lending fees for

non-cash collateral payable by the Lehman BrokerDealer to LBTC on behalf of the Client Plans. LBTC

will submit the method for determining such

minimum daily lending fees to an independent

fiduciary of the Client Plan for approval before

initially lending any securities to a Lehman BrokerDealer on behalf of a Client Plan.

8LBTC will adopt maximum daily rebate rates

with respect to securities loans collateralized with

cash collateral. LBTC will submit the method for

determining such maximum daily rebate rates to an

independent fiduciary of a Client Plan for approval

before initially lending any securities to the

Lehman Broker-Dealer on behalf of such Client

Plan.

9An overnight ‘‘REPO’’ is an overnight

repurchase agreement which is an arrangement

whereby securities dealers and banks finance their

inventories of Treasury bills, notes, and bonds. The

dealer or bank sells securities to an investor with

a temporary surplus of cash, agreeing to buy them

back the next day. Such transactions are settled in

immediately available Federal Funds, usually at a

rate below the Federal Funds rate (the rate charged

by the banks lending funds to each other). See

Barron’s Dictionary of Finance and Investment

Terms, 2nd Edition (New York, 1987).

discretion, to any sub-agent, including

LBTC, which is to provide securities

lending services to the plan.6

15. Each time a Client Plan loans

securities to the Lehman Broker-Dealers

pursuant to the Basic Loan Agreement,

the Lehman Broker-Dealers will execute

a designation letter specifying the

material terms of the loan, including the

securities to be loaned, the required

level of collateral, and the fee or rebate

payable, and any special delivery

instructions. The terms of each loan will

be at least as favorable to the Client Plan

as those of a comparable arm’s-length

transaction between unrelated parties.

16. LBTC will establish each day a

written schedule of lending fees 7 and

rebate rates 8 to assure uniformity of

treatment among borrowing brokers and

to limit the discretion LBTC would have

in negotiating securities loans to the

Lehman Broker-Dealers. Loans to the

Lehman Broker-Dealers on any day will

be made at rates on the daily schedule

or at rates which may be more

advantageous to the Client Plans. In no

case will the loans be made to the

Lehman Broker-Dealers at rates or

lending fees less advantageous to the

Client Plan than those on the schedule.

The rebate rates, which are

established for cash collateral loans

made by the Client Plans, will take into

account the potential demand for the

loaned securities, the applicable

benchmark cost of funds indices

[typically, the U.S. Federal Funds Rate

established by the Federal Reserve

System (Federal Funds), the overnight

‘‘REPO’’ 9 rate, or the like] and the

anticipated investment return on

overnight investments which are

permitted by the Client Plan Fiduciary.

The lending fees, which are established

with respect of loans made by the Client

Plans collateralized by other than cash,

will be set daily to reflect conditions as

influenced by potential market demand.

LBTC will negotiate rebate rates for

cash collateral payable to each

borrower, including the Lehman BrokerDealers, on behalf of a Client Plan.

Where, for example, cash collateral

derived from an overnight loan is

intended to be invested in a generic

repurchase agreement, any rebate fee

determined with respect to an overnight

repurchase agreement benchmark will

be set below the applicable ‘‘ask’’

quotation therefor. Where cash

collateral is derived from a loan with an

expected maturity date (term loan) and

is intended to be invested in

instruments with similar maturities, the

maximum rebate fee will be less than

the investment return (assuming no

investment default). With respect to any

loan to the Lehman Broker-Dealers,

LBTC will not knowingly negotiate a

rebate rate with respect to such loan

which over the anticipated term of the

loan would produce a zero or negative

return to the Client Plan (assuming no

default on the investments related to the

cash collateral from such loan where

LBTC has investment discretion over

the cash collateral). LBTC represents

that the written rebate rate established

daily for cash collateral under loans

negotiated with the Lehman BrokerDealers will not exceed the rebate rate

which would be paid to a similarly

situated unrelated borrower with

respect to a comparable securities

lending transaction. LBTC will disclose

the method for determining the

maximum daily rebate rate as described

above to an independent fiduciary of the

Client Plan for approval before lending

any securities to the Lehman BrokerDealers on behalf of the Client Plan.

17. For collateral other than cash, the

applicable lending fee in respect of any

outstanding loan will be reviewed daily

by LBTC for competitiveness and

adjusted, where necessary, to reflect

market terms and conditions. With

respect to any calendar quarter, at least

50 percent of the securities loans

negotiated on behalf of the Client Plans

will be to borrowers not affiliated with

LBTC, and so the competitiveness of the

loan fee will be tested in the

marketplace. Accordingly, the

applicants state that loans to the

Lehman Broker-Dealers should result in

a competitive rate of income to the

lending Client Plan. At all times, LBTC

will effect loans in a prudent and

diversified manner.

The method of determining the actual

daily securities lending rates (fees and

rebates), the minimum lending fees

payable by the Lehman Broker-Dealers

and the maximum rebate payable to the

Lehman Broker-Dealers, will be

specified in an exhibit attached to the

Agency Agreement to be executed

between the independent fiduciary of

the Client Plan and LBTC in cases

where LBTC is the direct securities

lending agent. These methods of

determination need not be formulative,

but may consist of a description of the

process involved in determining rebate

rates and lending fees.

18. If LBTC reduces the lending fee or

increases the rebate rate on any

outstanding loan to an affiliated

borrower (except for any change

resulting from a change in the value of

any index with respect to which the fee

or rebate is calculated), LBTC, by the

close of business on the date of such

adjustment, shall provide the

independent fiduciary of the Client Plan

with notice that it has adjusted such fee

or rebate to such affiliated borrower,

and that the Client Plan may terminate

such loan at any time. LBTC shall

provide the independent fiduciary with

such information as the independent

fiduciary may reasonably request

regarding such adjustment.

19. While LBTC will normally lend

securities to requesting borrowers on a

first come, first served basis, as a means

of assuring uniformity of treatment

among borrowing brokers, in some cases

it may not be possible to adhere to first

come, first served allocation. This can

occur in instances where (a) the credit

limit established for such ‘‘first in line’’

borrower by LBTC and/or the Plan has

already been satisfied; (b) the ‘‘first in

line’’ borrower is not approved as a

borrower by a particular Client Plan

whose securities are sought to be

borrowed; or (c) the ‘‘first in line’’

borrower cannot be ascertained, as an

operational matter, because several

borrowers spoke to different

representatives of LBTC at or about the

same time with respect to the same

security. In situations (a) and (b), loans

would normally be effected with the

‘‘second in line’’ borrower. In situation

(c), securities would be allocated as

equitably as practicable among all

eligible requesting borrowers.
33722 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

10See Footnote 2 above regarding the scope of

relief that may be provided by the Department in

any successor class exemption and the type of

assets that may be used as collateral for a securities

loan.

20. LBTC on behalf of the Client Plan

will receive collateral from Lehman

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

Lehman Broker-Dealers. The collateral

will consist of U.S. dollars, securities

issued or guaranteed by the U.S.

Government or its agencies or

irrevocable U.S. bank letters of credit

(issued by a person other than the

Lehman Broker-Dealers or any affiliates

thereof) or such other types of collateral

which might be permitted by the

Department under PTE 81–6 or any

successor.10 The market value of the

collateral on the close of business on the

business day preceding the day the

loaned securities are delivered to the

Lehman Broker-Dealers will be at least

102 percent of the then market value of

the loaned securities. The Basic Loan

Agreement will give the Client Plan a

continuing security interest in and a

lien on the collateral. LBTC will

monitor the level of the collateral daily.

If the market value of the collateral falls

below 100 percent, LBTC will require

the Lehman Broker-Dealers to deliver by

the close of business the next day

sufficient additional collateral to bring

the level back to at least 102 percent.

21. Subject to the terms and

conditions of the Agency Agreement (or

the Primary Lending Agreement), LBTC

will invest and reinvest all or

substantially all cash collateral in

approved investments designated by the

applicable Client Plan and identified on

a schedule attached to the relevant

agreement. All approved investments

made by LBTC will be for the sole

account and risk of the applicable Client

Plan. These approved investments shall

not include securities, instruments,

transactions and investments issued by

LBTC or any of its affiliates. From time

to time, the Client Plan may instruct

LBTC in writing not to make any

approved investment with a certain

counterparty, or through a particular

financial institution or intermediary.

Alternatively, the Client Plan may also

retain the right to directly control the

reinvestment of the cash collateral.

22. Each Client Plan participating in

the lending program will be sent a

monthly transaction report. The

monthly report will provide a list of all

security loans outstanding and closed

for a specified period. The report will

identify for each open loan position, the

securities involved, the value of the

security for collateralization purposes,

the current value of the collateral, the

rebate or loan premium (as the case may

be) at which the security is loaned, and

the number of days the security has

been on loan. At the request of the

Client Plan, such a report will be

provided on a weekly or daily basis,

rather than a monthly basis. Also, upon

request of the Client Plan, LBTC will

also provide the Client Plan with daily

confirmations of securities lending

transactions.

In order to provide the means for

monitoring lending activity, rates on

loans to the Lehman Broker-Dealers

compared with loans to other brokers,

and the level of collateral on the loans,

it is represented that the monthly report

will show, on a daily basis, the market

value of all outstanding security loans to

the Lehman Broker-Dealers and to other

borrowers. Further, the monthly report

will state the daily fees where collateral

other than cash is utilized and will

specify the details used to establish the

daily rebate payable to all brokers where

cash is used as collateral. The monthly

report also will state, on a daily basis,

the rates at which securities are loaned

to the Lehman Broker-Dealers compared

with those at which securities are

loaned to other brokers. This statement

will give an independent Client Plan

fiduciary information which can be

compared to that contained in the daily

rate schedule.

23. Only Client Plans with total assets

having an aggregate market value of at

least $50 million are permitted to lend

securities to the Lehman Broker-Dealers;

provided, however, that—

(a) In the case of two or more Client

Plans which are maintained by the same

employer, controlled group of

corporations or employee organization

(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 the Lehman BrokerDealers, 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.

(b) In the case of two or more Client

Plans which are not maintained by the

same employer, controlled group of

corporations or employee organization

(the Unrelated Client Plans), whose

assets are commingled for investment

purposes in a group trust or any other

form of entity the assets of which are

‘‘plan assets’’ under the Plan Asset

Regulation, which entity is engaged in

securities lending arrangements with

the Lehman Broker-Dealers, the

foregoing $50 million requirement is

satisfied if such trust or other entity has

aggregate assets which are in excess of

$50 million (excluding the assets of any

Plan with respect to which the fiduciary

responsible for making the investment

decision on behalf of such group trust

or other entity or any member of the

controlled group of corporations

including such fiduciary is the

employer maintaining such Plan or an

employee organization whose members

are covered by such Plan). However, the

fiduciary responsible for making the

investment decision on behalf of such

group trust or other entity—

(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.)

24. Plan B. The Lehman BrokerDealers will directly negotiate

‘‘exclusive borrowing’’ agreements with

fiduciaries of Client Plans, including

Client Plans for which LBTC serves as

directed trustee or custodian, where

such fiduciary is independent of the

Lehman Broker-Dealers and LBTC.

Under the exclusive borrowing

agreement, the Lehman Broker-Dealer

will have exclusive access for a

specified period of time to borrow

securities of the Client Plan pursuant to

certain conditions. LBTC will not

participate in the negotiation of the

exclusive borrowing agreement. The

involvement of LBTC, if any, will be

limited to such activities as holding

securities available for lending,

handling the movement of borrowed

securities and collateral, and investing

or depositing any cash collateral and

supplying the Client Plans with certain

reports. The applicants represent that,

under the exclusive borrowing

agreement, neither the Lehman BrokerDealer nor LBTC will perform for the

Client Plans the functions which
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33723

constitute the essential functions of a

securities lending agent.

25. Upon delivery of loaned securities

to the Lehman Broker-Dealer, LBTC, or

another custodian on behalf of the

Client Plan, will receive from the

Lehman Broker-Dealer the same day by

physical delivery, book entry in a

securities depository, wire transfer, or

similar means collateral consisting of

U.S. dollars, securities issued or

guaranteed by the U.S. Government or

its agencies or irrevocable U.S. bank

letters of credit (issued by a person

other than a Lehman Broker-Dealer or

any affiliate thereof) or other non-cash

collateral permitted under PTE 81–6 or

any successor. The market value of the

collateral at the close of business on the

business day preceding the day the

loaned securities are delivered to the

Lehman Broker-Dealer will be at least

102 percent of the then market value of

the loaned securities. LBTC or such

other custodian, will monitor the level

of the collateral daily. If the market

value of the collateral falls below 100

percent of that of the loaned securities,

the Lehman Broker-Dealer will deliver

sufficient additional collateral on the

following day such that the market

value of all collateral will equal at least

102 percent of the market value of the

loaned securities. The Lehman BrokerDealer or, in the case of some ClientPlans, LBTC, will provide a weekly

report to the Client Plan showing, on a

daily basis, the aggregate market value

of all outstanding security loans to the

Lehman Broker-Dealer, and the

aggregate market value of the collateral.

26. Before entering into an exclusive

borrowing agreement, the Lehman

Broker-Dealer will furnish to the Client

Plan, if it does not already possess such

statements, the most recent publicly

available audited and unaudited

statements of its financial condition, as

well as any other publicly available

information which it believes is

necessary for the Client Plan to

determine whether to enter into or

renew the agreement, and a copy of the

final exemption, if granted, together

with this proposed exemption. The

agreement will contain a representation

by the Lehman Broker-Dealer that, as of

each time it borrows securities, there

has been no material adverse changes in

its financial condition. All the

procedures under the agreement will, at

a minimum, conform to the applicable

provisions of PTE 81–6 and PTE 82–63.

27. In exchange for the exclusive right

to borrow certain securities from the

Client Plan, the Lehman Broker-Dealer

will pay the Client Plan either a flat fee,

or a minimum flat fee plus a percentage

(negotiated at the time the exclusive

borrowing agreement is entered into) of

the total balance outstanding of

borrowed securities, or a percentage of

the total balance outstanding without

any flat fee. A percentage may be

established by reference to an objective

formula. The Lehman Broker-Dealer and

the independent fiduciary of the Client

Plan may agree that different fee

arrangements will apply to different

securities or different groups of

securities. Any change in the rate paid

to the Client Plan will require written

consent of the Client Plan independent

fiduciary. However, such Client Plan’s

consent will be presumed where the rate

changes pursuant to an objective

formula. In such instances, an

independent fiduciary of the Client Plan

must be notified at least 24 hours in

advance of the rate change, and the

independent fiduciary must not object

in writing to such change, prior to the

effective date of the change. Under this

fee arrangement, all earnings generated

by the cash collateral will be returned

to the Lehman Broker-Dealer. The Client

Plan will receive credit for all interest,

dividends or other distributions on any

borrowed securities. In addition, under

some arrangements, the earnings on the

collateral due to the Lehman BrokerDealer, and the dividends, interest, and

other distributions on the borrowed

securities payable to the Client Plan

may be offset against each other, so that

only a net amount will be returned to

the Lehman Broker-Dealer.

28. The exclusive borrowing

agreement and/or any securities loan

outstanding may be terminated by either

party at any time. Upon termination of

any securities loan, the Lehman BrokerDealer will deliver any borrowed

securities back to the Client Plan within

five business days of written notice of

termination. If the Lehman BrokerDealer fails to return the loaned

securities or the equivalent thereof, the

Client Plan will have the right under the

agreement to purchase securities

identical to the borrowed securities and

apply the collateral to payment of the

purchase price and any other expenses

of the Client Plan associated with the

sale and/or purchase. Pursuant to the

terms of the exclusive borrowing

agreement, if the collateral is

insufficient to satisfy the Lehman

Broker-Dealer’s obligation to return the

Client Plan’s securities, the Lehman

Broker-Dealer will indemnify the Client

Plan with respect to the difference

between the replacement cost of the

securities and the market value of the

collateral on the date a loan is declared

to be in default together with expenses

not covered by the collateral, plus

applicable interest at a reasonable rate.

29. With regard to those Client Plans

for which LBTC provides custodial,

clearing and/or reporting functions

relative to securities loans, LBTC and a

Client Plan fiduciary independent of

LBTC and the Lehman Broker-Dealers,

will agree in advance and in writing to

any fee that LBTC is to receive for such

services. Such fees, if any, would be

fixed fees (e.g., LBTC might negotiate to

receive a fixed percentage of the value

of the assets with respect to which it

performs these services, or to receive a

stated dollar amount) and any such fee

would be in addition to any fee LBTC

has negotiated to receive from any such

Client Plan for standard custodial or

other services unrelated to the securities

lending activity. The arrangement for

LBTC to provide such functions relative

to securities loans to the Lehman

Broker-Dealer will be terminable by the

Client Plan within five business days of

receipt of written notice without penalty

to the Client Plan, except for the return

to the Lehman Broker-Dealer of a part of

any flat fee paid by the Lehman BrokerDealer to the Client Plan, if the Client

Plan has also terminated its exclusive

borrowing agreement with the Lehman

Broker-Dealer. Before entering into an

agreement with the Client Plan to

provide such functions relative to

securities loans to the Lehman BrokerDealer, LBTC will furnish to the Client

Plan any publicly available information

which it believes is necessary for the

Client Plan to determine whether to

enter into or renew the exclusive

borrowing agreement.

30. In summary, the applicant

represents that the subject transactions

will satisfy the statutory criteria of

section 408(a) of the Act and section

4975(c)(2) of the Code because:

A. Plan A requires approval of the

terms of the Basic Loan Agreement and

the execution of the Agency Agreement

(or the Primary Lending Agreement) by

a Client Plan fiduciary independent of

the Lehman Broker-Dealers and LBTC

before a Client Plan lends any securities

to the Lehman Broker-Dealers;

B. Under Plan B, the Lehman BrokerDealers will directly negotiate exclusive

borrowing agreement with the Client

Plan;

C. The lending arrangements will

permit the Client Plans to lend

securities to the Lehman Broker-Dealers,

which have a substantial market

position as securities lenders, and will

enable the Client Plans to earn

additional income from the loaned

securities while continuing to receive

any dividends, interest payments and

other distributions on those securities;
33724 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

D. Neither the Lehman Broker-Dealers

nor LBTC 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 investment of cash

collateral after the 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 or disposition of securities

available for loan;

E. Before a Client Plan participates in

a securities lending program and before

any loan of securities to the Lehman

Broker-Dealers is affected, a Client Plan

fiduciary who is independent of LBTC

and the Lehman Broker-Dealers must

have:

(i) Authorized and approved a

securities lending authorization

agreement with LBTC (i.e., the Agency

Agreement) with LBTC, where LBTC is

acting as the direct securities lending

agent;

(ii) Authorized and approved the

primary securities lending authorization

agreement (i.e., the Primary Lending

Agreement) with the primary lending

agent, where LBTC is lending securities

under a sub-agency arrangement with

the primary lending agent;

(iii) Approved the general terms of the

securities loan agreement (i.e., the Basic

Loan Agreement) between such Client

Plan and the borrower, the Lehman

Broker-Dealers, the specific terms of

which are negotiated and entered into

by LBTC;

F. A Client Plan may terminate any

securities lending agency agreement at

any time without penalty on five (5)

business days’ notice;

G. LBTC (or another custodian on

behalf of the Client Plan) will receive

from the Lehman Broker-Dealers either

by physical delivery, book entry in a

securities depository, wire transfer or

similar means collateral consisting of

U.S. dollars, securities issued or

guaranteed by the U.S. Government or

its agencies or irrevocable U.S. bank

letters of credit (issued by an entity

other than the Lehman Broker-Dealers)

or other collateral permitted under PTE

81–6 (as amended from time to time or,

alternatively, any additional or

superceding class exemption that may

be issued to cover securities lending by

employee benefit plans) by the close of

business on or before the day the loaned

securities are delivered to the Lehman

Broker-Dealers;

H. The market value of the collateral

will initially equal at least 102 percent

of the market value of the loaned

securities. If the market value of the

collateral falls below 100 percent, the

Lehman Broker-Dealers will deliver

additional collateral on the following

day such that the market value of the

collateral will again equal 102 percent.

The Basic Loan Agreement will give the

Client Plans a continuing security

interest in, and a lien, on the collateral.

LBTC will monitor the level of the

collateral daily;

I. All the procedures regarding the

securities lending activities will at a

minimum conform to the applicable

provisions of PTE 81–6 and PTE 82–63;

J. In the event the Lehman BrokerDealer fails to return securities within a

designated time, the Client Plan will

have the right under the Basic Loan

Agreement to purchase securities

identical to the borrowed securities and

apply the collateral to payment of the

purchase price. If the collateral is

insufficient to satisfy the Lehman

Broker-Dealer’s obligation to return the

Client Plan’s securities, the Lehman

Broker-Dealer will indemnify the Client

Plan with respect to the difference

between the replacement cost of

securities and the market value of the

collateral on the date the loan is

declared in default, together with

expenses incurred by the Client Plan

plus applicable interest at a reasonable

rate, including any attorneys fees

incurred by the Client Plan for legal

action arising out of default on the

loans, or failure by the Lehman BrokerDealer to properly indemnify the Client

Plan;

K. The Client Plan will receive the

equivalent of all distributions made to

the 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;

L. Only those Client Plans which have

assets with an aggregate market value of

at least $50 million (except for certain

Related Client Plans or Unrelated Client

Plans whose assets are commingled in a

group trust under the conditions

discussed herein) will be permitted to

lend securities to the Lehman BrokerDealers;

M. With respect to any calendar

quarter, at least 50 percent or more of

the outstanding dollar value of

securities loans negotiated on behalf of

Client Plans will be to unrelated

borrowers;

N. The terms of each loan of securities

by the Client Plans to the Lehman

Broker-Dealer will be at least as

favorable to such plans as those of a

comparable arm’s-length transaction

between unrelated parties;

O. Each Client Plan will receive

monthly reports on the transactions,

including but not limited to the

information described in paragraph 22

above, so that an independent fiduciary

of such plan may monitor the securities

lending transactions with the Lehman

Broker-Dealer;

P. Before entering into the Basic Loan

Agreement and before a Client Plan

lends any securities to the Lehman

Broker-Dealer, an independent fiduciary

of such Client Plan will receive

sufficient information, concerning the

financial condition of the Lehman

Broker-Dealer, including the audited

and unaudited financial statements of

the Lehman Broker-Dealer;

Q. The Lehman Broker-Dealer will

provide to a Client Plan prompt notice

at the time of each loan by such plan of

any material adverse changes in LBTC’s

financial condition, since the date of the

most recently furnished financial

statements;

R. With regard to the ‘‘exclusive

borrowing’’ agreement, the Lehman

Broker-Dealer will directly negotiate the

agreement with a Client Plan fiduciary

who is independent of the Lehman

Broker-Dealers and LBTC, and such

agreement may be terminated by either

party to the agreement at any time;

S. The Client Plan: (a) receives a

reasonable fee that is related to the

value of the borrowed securities and the

duration of the loan, or (b) 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 the Lehman Broker-Dealer,

if such fee is not greater than the fee the

Client Plan would pay an unrelated

party in an arm’s length transaction;

T. In the event that a Lehman BrokerDealer is also the securities lending

agent for a Client Plan, LBTC shall act

as securities lending sub-agent in

connection with any loan of securities

to the Lehman Broker-Dealer; and

U. Prior to the Client Plan’s approval

of the lending of its securities to the

Lehman Broker-Dealers, a copy of the

final exemption, if granted, (and this

notice of pendency) will be provided to

the Client Plan.

For Further Information Contact:

Ekaterina A. Uzlyan of the Department,

telephone (202) 219–8883. (This is not

a toll-free number.)
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33725

11Because each IRA has only one Participant,

there is no jurisdiction under 29 CFR § 2510.3–3(b).

However, there is jurisdiction under Title II of the

Act pursuant to section 4975 of the Code.

12The Department notes that the Internal Revenue

Service has taken the position that a lack of

diversification of investments may raise questions

in regard to the exclusive benefit rule under section

401(a) of the Code. See, e.g. Rev. Rul. 73–532, 1973–

2 C.B. 128. The Department further notes that

section 408(a) of the Code, which describes the tax

qualification provisions for IRAs, mandates that the

trust be created for the exclusive benefit of an

individual or his beneficiaries. However, the

Department is expressing no opinion in this

proposed exemption regarding whether violations

of the Code have taken place with respect to the

purchase and subsequent retention of the Stock by

some of the Applicants.

Further, to the extent that Turnberry or the other

sellers were not disqualified persons with respect

to the IRAs under section 4975(e)(2), the purchase

of the Stock would not have constituted a

prohibited transaction under section 4975(c)(1)(A)

of the Code. However, the purchase and holding of

the Stock by the IRAs of officers and directors of

Turnberry and/or the Bank raises questions under

section 4975(c)(1)(D) and (E) depending on the

degree (if any) of the IRA Participant’s interest in

the transaction. Section 4975(c)(1)(D) and (E) of the

Code prohibits the use by or for the benefit of a

disqualified person of the assets of a plan and

prohibits a fiduciary from dealing with the assets

of a plan in his own interest or for his own account.

The IRA Participants, as officers and directors of

Turnberry and/or the Bank, may have interests in

the proposed transactions which may affect their

best judgment as fiduciaries of their IRAs. In such

circumstances, the transactions may violate

4975(c)(1)(D) and (E) of the Code. See Advisory

Opinion 90–20A (June 15, 1990). Accordingly, to

the extent there were violations of section

4975(c)(1)(D) and (E) of the Code with respect to the

purchases and holdings of the Stock by the IRAs,

the Department is extending no relief for these

transactions herein.

Individual Retirement Accounts (the

IRAs) for Roark Young, Russell Rice,

Mary J. Rice, Bruce Lamchick, Steven

McKean and David McKean, and

Burton Young (Collectively, the

Participants) Located in Miami, Florida

[Application No. D–10558–10561, 10565–

10566, 10568]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of 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). If the exemption is granted,

the sanctions resulting from the

application of section 4975 of the Code,

by reason of section 4975(c)(1)(A)

through (E) of the Code, shall not apply

to the cash sales (the Sales) of certain

stock (the Stock) by the IRAs 11 to the

Applicants, disqualified persons with

respect to the IRAs, provided that the

following conditions were met:

(a) The terms and conditions of the

Sales were at least as favorable to each

IRA as those obtainable in an arm’s

length transaction with an unrelated

party;

(b) The Sale of Stock by each IRA was

a one-time transaction for cash;

(c) Each IRA received the fair market

value of the Stock as established by a

qualified, independent appraiser; and

(d) Each IRA was not required to pay

any commissions, costs or other

expenses in connection with each Sale.

Effective Date: These proposed

exemptions, if granted, will be effective

as of March 30, 1998.

Summary of Facts and Representations

1. The IRAs are individual retirement

accounts, as described in Section 408(a)

of the Code. Among the assets of each

IRA were shares of closely-held stock in

Turnberry Financial Services, Inc.

(Turnberry), a unitary savings and loan

holding company located in Aventura,

Florida. The primary asset held by

Turnberry is the Turnberry Bank (the

Bank), also of Aventura, Florida.

The applicants describe the

Participants, the IRAs, and their former

holdings of the Stock as follows:

(a) The IRA of Roark Young,

Chairman and CEO of Turnberry and the

Bank, and majority shareholder in

Turnberry, currently holds assets of

approximately $260,141 which, prior to

the Sale, included 6,400 shares of the

Stock. The IRA acquired most of the

Stock from the issuer, at various times

and various prices, from the period

between 1993 and 1995.

(b) The IRA of Russell Rice, President

of Turnberry, Executive Vice President

of the Bank, and Director of both,

currently holds total assets of

approximately $22,000 which, prior to

the Sale, included 700 shares of the

Stock. The IRA acquired the Stock from

other shareholders during 1997 at a

price of $25, the fair market value at the

time of purchase.

(c) The IRA of Mary J. Rice, wife of

Russell Rice, currently holds total assets

of approximately $9,600 which, prior to

the Sale, included 300 shares of the

Stock. The IRA acquired the Stock

during 1997 at a price of $25, the fair

market value of the Stock at the time of

purchase.

(d) The IRA of Burton Young, Director

of the Bank, currently holds total assets

of approximately $1,563,039 which,

prior to the Sale, included 4,567 shares

of the Stock. The IRA acquired all of the

Stock from the issuer in October of

1995.

(e) The IRA of David McKean

currently holds total assets of

approximately $14,000 which, prior to

the Sale, included 380 shares of the

Stock. The IRA acquired most of the

Stock from the issuer at various times

and prices during the period from 1990

to 1997.

(f) The IRA of Steven McKean

currently holds total assets of

approximately $20,000 which, prior to

the Sale, included 715 shares of the

Stock. The IRA acquired most of the

Stock from the issuer at various times

and various prices during the period of

1990 to 1997.

(g) The IRA of Bruce Lamchick

currently holds total assets of

approximately $320,000, which, prior to

the Sale, included 700 shares of the

Stock. The IRA acquired the Stock from

other shareholders in October 1995 for

its fair market value.

2. The applicants request an

exemption for the Sale of the Stock by

each individual IRA to its respective

Participant. Business and income tax

considerations have recently caused

Turnberry to elect to be taxed as a

Subchapter S corporation pursuant to

the Code, effective the close of business

on March 31, 1998. However, section

1361 of the Code only permits eligible

shareholders to hold stock in a

Subchapter S corporation. Because the

IRAs are not eligible shareholders for

purposes of the Code, the applicants

wished to purchase the Stock from their

IRAs. The applicants represent that the

acquisition of the Stock by each IRA

was done for investment purposes and

that, in fact, each IRA made a profit on

its original investment.12 Furthermore,

the applicants represent that the Stock

held by the IRAs only represented a

small portion of the 296,300 shares

outstanding.

3. Mr. David A. Harris (Mr. Harris)

and Mr. Douglas K. Southard (Mr.

Southard), both accredited appraisers

with Southard Financial, located in

Memphis, Tennessee, appraised the

Stock on July 14, 1997. Both Mr. Harris

and Mr. Southard represent that they are

full-time, qualified appraisers, as

demonstrated by the fact that they both

are currently Senior Members of the

American Society of Appraisers. In

addition, Mr. Harris and Mr. Southard

represent that they and their firm are

independent of the Participants. After

analyzing the Stock, on a marketable

minority interest basis which they

believed appropriate for this

transaction, Southard and Mr. Harris

concluded that the fair market value of

the Stock was $30 per share.

In reaching their conclusion as to the

value of the Stock, Mr. Harris and Mr.

Southard took the weighted average of

the asset-based approach, the income

approach, the market approach using

price/book value, and the market

approach using prior transactions, and

arrived at a per share value of $29.98.
33726 Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices

13The Fund and Local 252 represent that the

lease satisfies the requirements of Prohibited

Transaction Class Exemption 76–1 (PTE 76–1, 41

FR 12740, March 26, 1976) and Prohibited

Transaction Class Exemption 77–10 (PTE 77–10, 42

FR 33918, July 1, 1977), relating to, among other

things, the leasing of office space by a

multiemployer plan to a participating employee

organization. The Department expresses no opinion

as to whether the lease satisfies the conditions of

PTE 76–1 or PTE 77–10.

After obtaining this number, they

rounded the fair market value to reflect

what they believe is the imprecision

inherent in the various assumptions

used in the fair market value

determination.

4. The applicants represent that the

transactions were feasible in that each

was a one-time transaction for cash.

Furthermore, the applicants state that

the transactions were in the best interest

of the IRAs because they provided each

IRA with the opportunity to dispose of

the Stock for cash at the fair market

value, thus allowing for diversification

and enhancing liquidity so as to

facilitate future distributions. Finally,

the applicants represent that the

transactions were protective of the

rights of the Participants and

beneficiaries because each IRA received

the fair market value of the Stock, as

determined by a qualified, independent

appraiser, and incurred no

commissions, costs, or other expenses as

a result of each Sale.

5. In summary, the applicants

represent that the proposed transactions

satisfy the statutory criteria of section

4975(c)(2) of the Code because: (a) the

terms and conditions of the Sales were

at least as favorable to each IRA as those

obtainable in an arm’s length

transaction with an unrelated party; (b)

the Sale of Stock by each IRA was a onetime transaction for cash; (c) each IRA

received the fair market value of the

Stock, as established by a qualified,

independent appraiser; and (d) each IRA

was not required to pay any

commissions, costs or other expenses in

connection with each Sale.

Notice to Interested Persons: Because

the applicants are the only participants

in the IRAS, it has been determined that

there is no need to distribute the notice

of proposed exemption (the Notice) to

interested persons. Comments and

requests for a hearing are due thirty (30)

days after publication of the Notice in

the Federal Register.

For Further Information Contact: Mr.

James Scott Frazier, telephone (202)

219–8881. (This is not a toll-free

number).

Service Employees International Union

Local 252 Welfare Fund (the Fund)

Located in Wynnewood, Pennsylvania

[Application No. L–10595]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act in

accordance with the procedures set

forth in 29 C.F.R. Part 2570, Subpart B

(55 FR 32836, August 10, 1990). If the

exemption is granted, the restrictions of

sections 406(a), 406(b)(1) and (b)(2) of

the Act shall not apply to the proposed

sale (the Sale) of certain improved real

property located in Wynnewood,

Pennsylvania (the Property) to the

Service Employees International Union

Local 252 (Local 252), a party in interest

with respect to the Fund, provided the

parties adhere to the following

conditions:

(a) The Sale is a one-time transaction

for cash;

(b) The terms and conditions of the

Sale are at least as favorable to the Fund

as those obtainable in an arm’s length

transaction with an unrelated party;

(c) The Sales price is an amount

which represents the greater of: (1) the

total cost to the Fund of acquiring the

Property; or (2) the fair market value of

the Property on the date of Sale as

determined by a qualified, independent

appraiser;

(d) The Fund does not incur any

expenses with respect to the Sale.

Summary of Facts and Representations

1. The Fund is a welfare plan

providing medical, hospital, and

disability benefits to approximately 900

health care workers currently affiliated

with Local 252, a 4000 member labor

organization based in Wynnewood,

Pennsylvania. The Fund was created

and is maintained pursuant to collective

bargaining agreements between Local

252 and employers in and around the

Philadelphia, Pennsylvania area. The

Local 252 trustee for the Fund is

Anthony L. Teti, and the employer

trustee is Zelick Kaplan. As of April 30,

1997, the Fund held net assets of

$4,745,862.

2. Among the assets of the Fund is the

Property, a parcel of improved real

property located at 3 East Wynnewood

Road in Wynnewood, Pennsylvania.

Purchased for $725,000 in July 1994

from an unrelated third party, the

Property consists of 8,490 square feet of

land improved with a 5,360 square foot,

two-story plus basement office building

(the Building). The first floor of the

Building consists primarily of office

space with the second floor containing

additional office space and a meeting

room. Currently, the Fund and Local

252 occupy the Building, the latter

leasing the space for its principal

office.13

3. The Fund’s need to sell the

Property arises out of a recent

restructuring imposed by the Service

Employees International Union (the

International). According to the

applicant, the International has ordered

the approximately 900 health care

workers affiliated with Local 252 to

transfer their membership to two other

local organizations whose membership

also consists of workers in the health

care industry. Pursuant to the agreement

between Local 252 and the

International, the Fund will be

terminated and the assets currently held

therein transferred to the International’s

welfare fund. As a result of this transfer,

the International plans to dispose of the

Property. Because the Building

currently serves as Local 252’s principal

office, and fearing that the Fund faces

taking a substantial loss on the sale of

the Property to an unrelated third party,

Local 252 wishes to purchase the

Property from the Fund.

4. Paul J. Leis (Mr. Leis), an accredited

appraiser with Hayden Real Estate, Inc.,

located in Conshohocken, Pennsylvania,

appraised the Property on January 21,

1998. Mr. Leis states that he is a

qualified appraiser, as demonstrated by

his status as a Member of the Appraisal

Institute and a Certified Pennsylvania

General Appraiser. In addition, Mr. Leis

represents that both he and Hayden Real

Estate, Inc. are independent of the

International, Local 252, and the

Trustees. After inspecting the Property,

Mr. Leis determined a fee simple

interest in the Property is worth

$550,000.

As noted above, the Fund originally

paid $725,000 for the Property. In light

of the fact that this amount exceeds the

fair market value determined pursuant

to Mr. Leis’s appraisal, Local 252

represents that it will pay $725,000 to

the Fund for the Property. Local 252 has

determined that paying the Fund an

amount equal to the Property’s

acquisition price would be in the best

interest of the Fund and its participants

and beneficiaries as it would enable the

Fund to recoup its original investment.

5. The applicant represents that the

proposed transaction would be feasible

in that it would be a one-time

transaction for cash. Furthermore, the

applicant states that the transaction

would be in the best interests of the

Fund because the price offered by Local

252 exceeds that obtainable in a sale to

an unrelated third party and because it

will allow the Fund to recoup its

original investment. Finally, the

applicant asserts that the transaction
Federal Register / Vol. 63, No. 118 / Friday, June 19, 1998 / Notices 33727

will be protective of the rights of the

participants and beneficiaries because

the Fund will receive a purchase price

which is an amount representing the

greater of: (1) the total cost to the Fund

of acquiring the Property; or (2) the fair

market value of the Property on the date

of Sale as determined by a qualified,

independent appraiser.

6. In summary, the applicant

represents that the proposed transaction

satisfies the criteria of section 408(a) of

the Act for the following reasons: (a) the

Sale is a one-time transaction for cash;

(b) the terms and conditions are at least

as favorable to the Fund as those

obtainable in an arm’s length

transaction with an unrelated party; (c)

the Sales price is an amount which

represents the greater of: (1) the total

cost to the Fund of acquiring the

Property; or (2) the fair market value of

the Property on the date of Sale as

determined by a qualified, independent

appraiser; and (d) the Fund does not

incur any expenses with respect to the

Sale.

Notice to Interested Persons: Notice of

the proposed exemption shall be given

to all interested persons in the manner

agreed upon by the applicant and the

Department within 15 days of the date

of publication in the Federal Register.

Such notice shall include a copy of the

notice of pendency of the exemption as

published in the Federal Register and

shall inform interested persons of their

right to comment and request a hearing

with respect to the proposed exemption.

Comments and requests for a hearing are

due on or before ll.

For Further Information Contact: Mr.

James Scott Frazier, 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 of

disqualified person from certain other

provisions of the Act and/or 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 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) Before an exemption may be

granted under section 408(a) of the Act

and/or section 4975(c)(2) of the Code,

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of the plan;

(3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or the Code,

including statutory or administrative

exemptions and transitional 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

(4) The proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete, and

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 16th day of

June, 1998.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 98–16335 Filed 6–18–98; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Prohibited Transaction Exemption 98–28;

Exemption Application No. D–10396, et al.]

Grant of Individual Exemptions;

Massachusetts Mutual Life Insurance

Company

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Grant of individual exemptions.

SUMMARY: This document contains

exemptions issued by the Department of

Labor (the Department) from certain of

the prohibited transaction restrictions of

the Employee Retirement Income

Security Act of 1974 (the Act) and/or

the Internal Revenue Code of 1986 (the

Code).

Notices were published in the Federal

Register of the pendency before the

Department of proposals to grant such

exemptions. The notices set forth a

summary of facts and representations

contained in each application for

exemption and referred interested

persons to the respective applications

for a complete statement of the facts and

representations. The applications have

been available for public inspection at

the Department in Washington, D.C. The

notices also invited interested persons

to submit comments on the requested

exemptions to the Department. In

addition the notices stated that any

interested person might submit a

written request that a public hearing be

held (where appropriate). The

applicants have represented that they

have complied with the requirements of

the notification to interested persons.

No public comments and no requests for

a hearing, unless otherwise stated, were

received by the Department.

The notices of proposed exemption

were issued and the exemptions are

being granted solely by the Department

because, effective December 31, 1978,

section 102 of Reorganization Plan No.

4 of 1978 (43 FR 47713, October 17,

1978) transferred the authority of the

Secretary of the Treasury to issue

exemptions of the type proposed to the

Secretary of Labor.

Statutory Findings: In accordance

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

section 4975(c)(2) of the Code and the

procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847,

August 10, 1990) and based upon the

entire record, the Department makes the

following findings:

(a) The exemptions are

administratively feasible;

(b) They are in the interests of the

plans and their participants and

beneficiaries; and

(c) They are protective of the rights of

the participants and beneficiaries of the

plans.

Massachusetts Mutual Life Insurance

Company (MM) Located in Springfield,

Massachusetts [Prohibited Transaction

Exemption 98–28; Exemption

Application No. D–10396]

Exemption

Section I—Exemption for Certain

Transactions Involving the Management

of Investments Shared by Two or More

Accounts Maintained by MM

The restrictions of certain sections of

the Act and the sanctions resulting from

the application of certain parts of

section 4975 of the Code shall not apply

to the following transactions if the

conditions set forth in Section IV are

met:

(a) Transfers Between Accounts

(1) The restrictions of section

406(b)(2) of the Act shall not apply to