EBSA
Notices
Notice of Proposed Individual Exemption Involving BlackRock, Inc. (BlackRock), and the PNC Financial Services Group, Inc. (PNC) (Collectively, the Applicants) Located in New York, NY
[ 10/10/2008]
[ PDF]
FR Doc E8-24100
[Federal Register: October 10, 2008 (Volume 73, Number 198)]
[Notices]
[Page 60325-60338]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc08-123]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11453]
Notice of Proposed Individual Exemption Involving BlackRock, Inc.
(BlackRock), and the PNC Financial Services Group, Inc. (PNC)
(Collectively, the Applicants) Located in New York, NY
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and the
Internal Revenue Code of 1986 (the Code). If granted, the proposed
exemption would permit the purchase of certain securities (the
Securities), during the existence of an underwriting or selling
syndicate with respect to such Securities, by PNC or BlackRock or a
related entity (collectively, a PNC/BlackRock Related Entity), which is
acting as a fiduciary (Asset Manager) on behalf of certain employee
benefit plans (Client Plans and In-House Plans), including such plans
invested in pooled funds, from any person other than such Asset Manager
or any other PNC/BlackRock Related Entity, under the following
circumstances: (a) Where a related broker-dealer (a PNC/BlackRock
Related Broker-Dealer) is a manager or member of such syndicate (AUT));
or (b) where a PNC/BlackRock Related Broker-Dealer is a manager or
member of such syndicate and an affiliated servicer (Affiliated
Servicer) serves as servicer of a trust that issued the Securities
(whether or not debt securities) (AUT and AST); or (c) where an
Affiliated Servicer serves as servicer of a trust that issued the
Securities (whether or not debt securities) (AST); provided certain
conditions as set forth below are satisfied. The proposed exemption, if
granted, would affect Client Plans and In-House Plans and their
participants and beneficiaries.
Effective Date: If granted, this proposed exemption will be effective
as of the date the final exemption is published in the Federal
Register.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted to the Department November 24,
2008.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemptions Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: Application No. D-11453.
Alternatively, interested persons are invited to submit comments or
hearing requests to the Department by e-mail to moffitt.betty@dol.gov
or by facsimile at (202) 219-0204.
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of section 406 of the Act
and section 4975(c)(1)(A)-(F) of the Code. The proposed exemption has
been requested in an application filed by PNC and BlackRock, pursuant
to section 408(a) of the Act and section 4975(c)(2) of the Code and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, August 10, 1990). Effective December 31, 1978, section
102 of Reorganization Plan No. 4 of 1978, (43 FR 47713, October 17,
1978) transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor.
Accordingly, this proposed exemption is being issued solely by the
Department.
The application pertaining to the proposed exemption contains
representations with regard to the proposed exemption which are
summarized below. Interested persons are referred to the application on
file with the Department for a complete statement of the facts and
representations. The application pertaining to the proposed exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution
Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8540. (This is not a
toll-free number.)
Summary of Facts and Representations
1. BlackRock, based in New York, NY, is a publicly traded
investment management firm. BlackRock, through its investment advisor
subsidiaries registered with the Securities and Exchange Commission
(SEC), currently manages assets for institutional and individual
investors worldwide through a variety of equity, fixed income, cash
management, and alternative investment products. As of September 30,
2007, BlackRock, through its advisor subsidiaries, had approximately
$1.3 trillion in assets under management. Furthermore, BlackRock's
asset managers satisfy the definition of the term Asset Manager, as set
forth in Section IV(f) of this proposed exemption.
PNC, based in Pittsburgh, PA, is a diversified financial services
company, with $131.4 billion in assets as of September 30, 2007. PNC
engages in retail banking, institutional banking, asset management,
broker-dealer, and global fund processing services and providing
related products through its bank and non-bank subsidiaries. Its
principal subsidiary bank, PNC Bank, National Association (PNC Bank),
located in Pittsburgh, PA has branches in the District of Columbia,
Florida, Indiana, Kentucky, Maryland, New Jersey, Ohio, Pennsylvania,
and Virginia. PNC also has two other subsidiary banks, which are
located, and have branches, in Delaware and Pennsylvania, as well as a
number of non-bank subsidiaries. As of September 30, 2007, PNC had
approximately $77 billion in assets under management. Furthermore,
PNC's asset managers satisfy the definition of the term Asset Manager,
as set forth in Section IV(f) of this proposed exemption.
[[Page 60326]]
2. On September 29, 2006, Merrill Lynch & Co. (Merrill Lynch)
combined its asset management business with BlackRock (the Merger). The
resulting entity retained the BlackRock name and continues to trade on
the New York Stock Exchange under the symbol ``BLK''. Prior to the
Merger, PNC owned approximately 70.6 percent (70.6%) of BlackRock. As a
result of the Merger, Merrill Lynch now owns a 50.3 percent (50.3%)
economic interest and an approximate 45 percent (45%) voting interest
in BlackRock, and PNC's ownership interest has been reduced to
approximately 34 percent (34%) of BlackRock. The remaining interest in
BlackRock is owned by the public and by BlackRock employees.
Merrill Lynch and PNC each have two seats on the Board of Directors
of BlackRock, as a result of the Merger. The remaining seats on the
Board of Directors, which include a majority of the total board seats,
are held by independent directors. The Applicants represent that each
of Merrill Lynch and PNC has agreed to vote all of its shares of
BlackRock stock on all matters, including the election of directors, in
accordance with the recommendations of the Board of Directors of
BlackRock so long as voting in such a manner is consistent with the
terms of the respective stockholder agreements between BlackRock and
each of Merrill Lynch and PNC.
3. It is represented that the BlackRock Related Entities, as
defined in Section IV(d), below, and the PNC Related Entities, as
defined in Section IV(e), below, to which the proposed exemption
applies are regulated by federal government agencies, such as the SEC,
as well as state government agencies and industry self-regulatory
organizations (e.g., the Financial Industry Regulatory Authority).
4. The Applicants request an individual administrative exemption
that would permit the purchase of securities, including Rule 144A
Securities, by an Asset Manager acting as a fiduciary on behalf of
Client Plans, as defined in Section IV(h), below, and In-House Plans,
as defined in Section IV(o), below, including such plans invested in
Pooled Funds, from any person other than the Asset Manager or PNC/
BlackRock Related Entities, as defined in Section IV(c), below, during
the existence of an initial offering of such Securities in which a PNC/
BlackRock Related Broker-Dealer, as defined in Section IV(b), below, is
a member or a manager of the underwriting syndicate for such
Securities. Such a transaction is described, herein, as an AUT. A PNC/
BlackRock Related Broker-Dealer would receive no selling concessions in
connection with the Securities sold to such plans.
In addition, the Applicants seek an exemption to deal with the
situation where a PNC/BlackRock Related Broker-Dealer is a manager or
member of such syndicate and an Affiliated Servicer, as defined in
Section IV(p), below, serves as servicer of a trust that issued the
Securities (whether or not debt securities). Such transaction is
described, herein, as an AUT and AST. Further, the Applicants have
requested an exemption where an Affiliated Servicer serves as servicer
of a trust that issued the Securities (whether or not debt securities)
and whether or not a PNC/BlackRock Related Entity is a manager or
member of the syndicate. Such transaction is described, herein, as an
AST.
5. With regard to the Asset Managers under the control of BlackRock
and Asset Managers under the control of PNC, the Applicants represent
that since the effective date of the Merger, BlackRock has had a
general policy with respect to Client Plans not to purchase securities,
including Rule 144A Securities, from underwriting or selling syndicates
with respect to which a PNC/BlackRock Related Broker-Dealer is a member
or manager out of concern that such purchases may give rise to
prohibited transactions under the Act. After the Merger,
notwithstanding PNC's sizable equity stakes in BlackRock, it is not
clear that PNC or any subsidiaries of PNC will be considered
``affiliates'' of BlackRock. Among the reasons for this uncertainty are
the stockholder agreements between BlackRock and PNC and BlackRock and
Merrill Lynch, each of which severely restricts the ability of Merrill
Lynch and PNC, individually or in combination, to control the
activities of BlackRock. For example, Merrill Lynch and PNC each has
agreed to vote all of its shares of BlackRock stock on all matters,
including the election of directors, in accordance with the
recommendations of the Board of Directors of BlackRock, so long as
voting in such a manner is consistent with the terms of the respective
stockholder agreements between BlackRock and Merrill Lynch and
BlackRock and PNC. In addition, PNC and its affiliates are permitted to
hold no more than the greater of: (i) 35% of the total voting power of
BlackRock issued and outstanding; and (ii) the ownership of PNC
immediately after the closing of the Merger. Merrill Lynch has agreed
to cap its ownership in BlackRock such that it is permitted to hold no
more than 45 percent (45%) of the voting shares of BlackRock.
Therefore, an argument can be made that neither Merrill Lynch nor PNC
are or will be in a position to ``control'' BlackRock. Nevertheless,
when an Asset Manager is a fiduciary with investment discretion with
respect to a Client Plan, and such Asset Manager is deciding whether to
purchase securities in an underwriting or selling syndicate in which a
PNC/BlackRock Related Broker-Dealer is a manager or member, it might be
argued that the ownership interest of PNC in BlackRock could affect
such Asset Manager's best judgment as a fiduciary, raising issues under
section 406(b) of the Act. Accordingly, the Applicants seek the
requested relief to cover PNC/BlackRock Related Broker-Dealers. The
Applicants represent that the failure to provide the requested relief
will result in Client Plans being unfairly precluded from participating
in a significant amount of investment opportunities.
6. With regard to the Asset Manager under the actual control of
PNC, the Applicants represent that, in accordance with Prohibited
Transaction Class Exemption 75-1, 40 FR 50845 (Oct. 31, 1975) (PTE 75-
1), such Asset Managers may purchase underwritten securities for plans
when a broker-dealer that is a PNC Related Entity is a member of the
underwriting or selling syndicate. In this regard, Part III of PTE 75-1
provides limited relief from the prohibited transaction provisions of
the Act for plan fiduciaries that purchase securities from an
underwriting or selling syndicate with respect to which the fiduciary
or an affiliate is a member. However, such relief is not available if
the affiliated broker-dealer is a manager of the underwriting or
selling syndicate. Further, PTE 75-1 does not provide relief for the
purchase of unregistered securities. Unregistered securities include
securities purchased by a broker-dealer for resale to a ``qualified
institutional buyer'' (QIB) pursuant to the SEC's Rule 144A under the
1933 Act. It is represented that Rule 144A is commonly utilized in
connection with sales of debt securities issued by domestic and foreign
corporations and equity securities issued by foreign corporations to
U.S. investors that are QIBs. The Applicants represent that many plans
have expanded their investment portfolios in recent years to include
securities sold under Rule 144A. Notwithstanding the unregistered
status of such securities, it is represented that syndicates selling
Rule 144A Securities are the functional equivalent of syndicates
selling registered securities.
[[Page 60327]]
7. The Applicants represent that PNC/BlackRock Related Broker-
Dealers regularly serve as managers of underwriting or selling
syndicates for registered securities, and as managers or members of
underwriting or selling syndicates for Rule 144A Securities.
Accordingly, Asset Managers are currently refraining from purchasing on
behalf of Client Plans securities where a PNC/BlackRock Related Broker-
Dealer is the manager of the underwriting or selling syndicate,
including Rule 144A Securities sold in such offerings, resulting in
such Client Plans being unable to participate in significant investment
opportunities.
8. The Applicants represent that Asset Managers make their
respective investment decisions on behalf of, or render investment
advice to, Client Plans pursuant to the governing document of the
particular Client Plan or pooled fund and the investment guidelines and
objectives set forth in the management or advisory agreement. Because
the Client Plans are covered by Title I of the Act, such investment
decisions are subject to the fiduciary responsibility provisions of the
Act.
9. The Applicants state, therefore, that the decision to invest in
a particular offering is made on the basis of price, value, and the
investment criteria of a Client Plan, not on whether the securities are
currently being sold through an underwriting or selling syndicate. The
Applicants further state that, because an Asset Manager's compensation
for its services is generally based upon assets under management, such
Asset Manager has little incentive to purchase securities in an
offering in which a PNC/BlackRock Related Broker-Dealer is an
underwriter unless such a purchase is in the interests of Client Plans.
If the assets under management do not perform well, the Asset Manager
will receive less compensation and could lose clients, costs which far
outweigh any gains from the purchase of underwritten securities. The
Applicants point out that under the terms of the proposed exemption, a
PNC/BlackRock Related Broker-Dealer may receive no selling concessions,
direct or indirect, that are attributable to the amount of securities
purchased by the Asset Manager on behalf of Client Plans.
10. The Applicants state that the Asset Managers generally purchase
securities in large blocks because the same investments will be made
across several accounts. If there is a new offering of an equity or
fixed income security that an Asset Manager wishes to purchase, it may
be able to purchase the security through the offering syndicate at a
lower price than it would pay in the open market, without transaction
costs and with reduced market impact if it is buying a relatively large
quantity. This is because a large purchase in the open market can cause
an increase in the market price and, consequently, in the cost of the
securities. Purchasing from an offering syndicate can thus reduce the
costs to Client Plans.
11. The Applicants point out that absent this proposed exemption,
if a PNC/BlackRock Related Broker-Dealer is a manager of a syndicate
that is underwriting an offering of securities, the Asset Managers will
be foreclosed from purchasing any securities on behalf of Client Plans
from that underwriting syndicate. In this regard, an Asset Manager
would have to purchase the same securities in the secondary market. In
such a circumstance, the Client Plans may incur greater costs both
because the market price is often higher than the offering price, and
because there are transaction and market impact costs. In turn, this
will cause the Asset Manager to forego other investment opportunities
because the purchase price of the underwritten security in the
secondary market exceeds the price that the Asset Manager would have
paid to the selling syndicate.
12. The Applicants, by letter, dated August 13, 2008, amended their
exemption application to request clarification from the Department that
PNC's origination of a loan in a commercial mortgage-backed securities
(CMBS) \1\ pool or the servicing of a loan in a CMBS pool by Midland
Loan Services, Inc. (Midland), a PNC Related Entity, will not prevent a
PNC/BlackRock Related Entity from purchasing securities issued by the
CMBS pool for a Client Plan. Specifically, the Applicants assert that
the timing of events relating to the formation of the pool and the
marketing of the securities is such that a plan fiduciary purchaser
could not provide additional income or otherwise confer any additional
benefit on PNC or Midland. The Applicants observed that these issues
can arise both in situations that happen to need an AUT exemption
(i.e., where the Asset Manager is related to a managing underwriter or
member of the syndicate and a servicer of the CMBS pool), as well as in
situations where the AUT issue was not present (i.e., where the Asset
Manager is not related to a managing underwriter or member of the
syndicate but is related to a servicer of the CMBS pool).
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\1\ Commercial mortgage-backed securities are non-convertible
debt securities, pass-through certificates or trust certificates
that represent a beneficial ownership interest in the assets of an
issuer which is a trust and which entitles the holder to payments of
principal, interest and/or other payments made with respect to the
assets of such trust and the corpus or assets of which consist
solely of obligations that bear interest or are purchased at a
discount and which are secured by commercial real property including
obligations secured by leasehold interests on commercial real
property that are rated in one of the four highest rating categories
by the Rating Organizations (such CMBS are described as ``investment
grade'').
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In this regard, the Applicants discussed with the Department
whether there was a need for additional relief from the Department for
situations in which the Asset Manager, a PNC/BlackRock Related Entity,
wishes to purchase, on behalf of Clients Plans, investment grade
securities backed by commercial mortgages originated or serviced by any
PNC/BlackRock Related Entity if such purchases meet the conditions of
an exemption substantially identical to PTE 2007-05, 72 FR 13130 (March
20, 2007) (an Underwriter Exemption(s)). The Applicants stated that the
CMBS are not sold to plans unless an individual Underwriter Exemption
is complied with.\2\ The Underwriter Exemptions require that any CMBS
purchased for plans be investment grade at the time of purchase.
Consequently, for these transactions, no below-investment grade
securities are purchased on behalf of plans.
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\2\ The Applicant notes that this is true for primary and
secondary market purchases and regardless of whether or not the
Asset Manager buying on behalf of the plan is related to an
underwriter. In primary market transactions, the Asset Manager/
underwriter relationship would necessitate compliance with the
proposed exemption, if granted by the Department. If the Asset
Manager/underwriter relationship did not exist but an Asset Manager/
servicer relationship were present, only the provisions of the
proposed exemption applicable to such a relationship would apply.
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The Applicants affirmed to the Department that only investment
grade CMBS are purchased for ERISA plans and that the ERISA plan
fiduciary purchasers of securities issued by a CMBS pool do not affect
the selection or compensation of a servicer of the loans in the CMBS
pool. Moreover, the process of setting fees for the various parties to
a CMBS transaction is not influenced by the fiduciary of an ERISA plan
purchasing CMBS in the issuance.
The Applicants provided a timeline to the Department, which
demonstrated that pool formation, selection of the servicers and
details of the servicers' compensation were finalized before the
printing of the preliminary offering materials and, thus, before
solicitations were made to potential purchasers of the higher rated
classes of securities that plans can purchase under an
[[Page 60328]]
Underwriter Exemption. In other words, the timing of purchases of CMBS
on behalf of plans is beyond the point where such purchases could
affect either the choice of loans for the securitization pool or the
choice of or compensation of any servicer. Thus, the Applicants
maintained that, in these CMBS transactions, there is no opportunity,
except as explained in footnote 3, below, for a buyer of an investment
grade tranche of CMBS to influence the selection of loans in a pool,
the appointment of a master, primary or special servicer, or the
compensation of a master, primary or special servicer.
The Applicants noted that although the steps necessary to form a
CMBS pool generally ensure that the above timeline is accurate, there
are rare cases where even the most junior tranches are investment grade
and could in theory be purchased on behalf of plans.\3\ In this
instance, the Applicant stated that both PNC and BlackRock have
indicated that they do not purchase such junior tranches on behalf of
ERISA plan clients and do not intend to do so in the future in such
circumstances.
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\3\ The Applicants state that this special case is the type of
transaction where all classes of offered securities are investment
grade. This somewhat unusual situation comes about from having a
transaction done with a small number of loans that are themselves
highly rated by a rating agency. A tranche's rating is a function of
(a) the ratings of the loans and (b) the position of the tranche (in
terms of subordination) within the structure of the transaction.
When all of the loans in a transaction receive investment grade
ratings, all of the tranches, including the controlling classes,
will be rated investment grade. Thus, in this special case, under
the Underwriter Exemptions and the AUT exemptions, fiduciaries
theoretically could buy such controlling classes on behalf of plans.
Nonetheless, the Applicants assert that as a matter of policy, they
do not buy first-loss pieces for plans. Further, the Applicants
state that the subordinate classes are usually too small in size to
be a useful purchase for plan fiduciaries.
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Based on these facts, the Department believes that no additional
relief is needed for PNC or BlackRock to purchase investment-grade CMBS
securities on behalf of plans during the existence of an underwriting
syndicate, solely due to PNC's or BlackRock's relationship to an
originator of one or more loans in the CMBS pool if, once the loan
originator has transferred the loans to the pool, the loan originator
has no other responsibilities to the pool other than a limited
repurchase obligation.\4\ Based upon the information provided by the
Applicants, the Department has determined to provide limited additional
relief, subject to modified conditions described in this proposed
exemption, for transactions where a PNC/BlackRock Related Entity is a
servicer of loans in the CMBS pool.
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\4\ See, March 11, 2008 Department letter to Barbara D.
Klippert. In an Information letter, the Department noted that a
mortgage loan originator would not be considered a sponsor of the
trust in an Underwriter Exemption transaction if the originator has
no responsibility for the organization of the issuer, does not
deposit the mortgage obligations in the issuer in exchange for
securities, and is not a signatory to the Mortgage Loan Sale and
Assignment Agreement and the related Trust Agreement. Similarly, a
mortgage loan originator does not become a ``sponsor'' of the issuer
merely because the originator makes representations and warranties
and incurs repurchase obligations in a mortgage loan purchase
agreement with the sponsor or an affiliate, or because the rights to
enforce such representations, warranties and obligations are
assigned into an issuer.
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Registered Securities Offerings
13. The Applicants represent that PNC/BlackRock Related Broker-
Dealers currently manage and participate in firm commitment
underwriting syndicates for registered offerings of both equity and
debt securities. While equity and debt underwritings may operate
differently with regard to the actual sales process, the basic
structures are the same. In a firm commitment underwriting, the
underwriting syndicate purchases the securities from the issuer and
then resells the securities to investors.
14. The Applicants represent that while, as a legal matter, a
selling syndicate assumes the risk that the underwritten securities
might not be fully sold, as a practical matter, this risk is reduced in
marketed deals, through ``building a book'' (i.e., taking indications
of interest from potential purchasers) prior to pricing the securities.
Accordingly, there is generally no incentive for the underwriters to
use their discretionary accounts (or the discretionary accounts of
their affiliates) to buy up the securities as a way to avoid
underwriting obligations.
15. It is represented that each selling syndicate has one or more
lead managers, who are the principal contact between the syndicate and
the issuer and who are responsible for organizing and coordinating the
syndicate. The syndicate may also have co-managers, who generally
assist in distributing the underwritten securities. While equity
syndicates may include additional underwriters that are not managers,
more recently, membership in many debt syndicates has been limited to
lead and co-managers.
16. It is represented that if more than one underwriter is involved
in a selling syndicate, the lead manager and the underwriters enter
into an ``Agreement among Underwriters'' in the form designated by one
of the lead managers selected by the issuer. Most lead managers have a
standing form of agreement. This master agreement is then commonly
supplemented for the particular deal by sending an ``invitation wire''
or ``terms telex'' that sets forth particular terms to the other
underwriters.
17. The arrangement between the syndicate and the issuer of the
underwritten securities is embodied in an underwriting agreement, which
is signed on behalf of the underwriters by one or more of the managers.
In a firm commitment underwriting, the underwriting agreement provides,
subject to certain closing conditions, that the underwriters are
obligated to purchase all of the underwritten securities from the
issuer in accordance with their respective commitments, if any
securities are not purchased. This obligation is met by using the
proceeds received from investors purchasing securities in the offering,
although there is a risk that the underwriters will have to pay for a
portion of the securities in the event that not all of the securities
are sold or an investor defaults on its obligation.
18. The Applicants represent that, generally, it is unlikely that
in marketed deals all offered securities will not be sold. In marketed
deals, the underwriting agreement is not executed until after the
underwriters have obtained sufficient indications of interest to
purchase the securities from a sufficient number of investors to assure
that all the securities being offered will be acquired by investors.
Once the underwriting agreement is executed, the underwriters promptly
begin contacting the investors to confirm the sales, at first by oral
communication and then by written confirmation. Sales may be finalized
within hours and sometimes minutes, but in any event prior to the
opening of the market for trading the next day. In registered
transactions, the underwriters have a strong interest in completing the
sales as soon as possible because, until they ``break syndicate,'' they
cannot recommence normal trading activity, which includes buying and
selling the securities for their customers or own account.
19. The Applicants represent that the process of ``building a
book'' or soliciting indications of interest occurs in a registered
equity offering, after a registration statement is filed with the SEC.
While it is under review by the SEC staff, representatives of the
issuer of the securities and the selling syndicate managers conduct
meetings with potential investors, who learn about the company and the
underwritten securities. Potential investors also
[[Page 60329]]
receive a preliminary prospectus. The underwriters cannot make any firm
sales until the registration statement is declared effective by the
SEC. Prior to the effective date, while the investors cannot become
legally obligated to make a purchase, such investors indicate whether
they have an interest in buying, and the lead managers compile a
``book'' of investors who are willing to ``circle'' a particular
portion of the issue. Although investors cannot be legally bound to buy
the securities until the registration statement is effective, investors
generally follow through on their indications of interest.
20. Assuming that the marketing efforts have produced sufficient
indications of interest, the Applicants represent that the issuer of
the securities, after consultation with the lead manager, will set the
price of the securities upon being declared effective by the SEC. After
the registration statement has been declared effective by the SEC and
the underwriting agreement is executed, the underwriters contact those
investors that have indicated an interest in purchasing securities in
the offering to execute the sales. The Applicants represent that
offerings are often oversubscribed, and many have an over-allotment
option that the underwriters can exercise to acquire additional shares
from the issuer. Where an offering is oversubscribed, the underwriters
decide how to allocate the securities among the potential purchasers.
However, if the offering is an initial public offering of an equity
security, then the underwriters may not sell the securities to (among
others) any person that is a broker-dealer, an associated person of a
broker-dealer, a portfolio manager, or an owner of a broker-dealer.
Additionally, underwriters may not withhold for their own account any
initial public offering of an equity security.
21. The Applicants represent that debt offerings and certain equity
offerings may be ``negotiated'' offerings, ``competitive bid''
offerings, or ``bought deals.'' ``Negotiated'' offerings are conducted
in the same manner as marketed equity offerings with regard to when the
underwriting agreement is executed and how the securities are offered.
``Competitive bid'' offerings, in which the issuer determines the price
for the securities through competitive bidding rather than negotiating
the price with the underwriting syndicate, are often performed under
``shelf'' registration statements pursuant to the SEC's Rule 415 under
the 1933 Act (Rule 415) (17 CFR 230.415).\5\
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\5\ The Applicants maintain that Rule 415 permits an issuer to
sell debt as well as equity securities under an effective
registration statement previously filed with the SEC by filing a
post-effective amendment or supplemental prospectus.
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22. In a competitive bid offering, prospective lead underwriters
will bid against one another to purchase debt securities, based upon
their determinations of the degree of investor interest in the
securities. Depending on the level of investor interest and the size of
the offering, a bidding lead underwriter may bring in co-managers to
assist in the sales process. Most of the securities are frequently sold
within hours, or sometimes even less than an hour, after the securities
are made available for purchase.
23. It is represented that because of market forces and the
requirements of Rule 415, the competitive bid process is generally,
though not exclusively, available only to issuers who have been subject
to the reporting requirements of the 1934 Act for at least one (1)
year.
24. Occasionally, underwriters ``buy'' the entire deal off of a
``shelf registration'' or in a Rule 144A offering before obtaining
indications of interest. These ``bought'' deals involve issuers whose
securities enjoy a deep and liquid secondary market, such that an
underwriter has confidence without pre-marketing that it can identify
purchasers for the securities.
Information Barriers
25. Prior applicants for similar relief have represented that there
are internal policies in place that restrict contact and the flow of
information between investment management personnel and non-investment
management personnel in the same or affiliated financial service firms.
The Applicants represent that, notwithstanding the concerns raised
herein pertaining to the level of ownership in BlackRock by PNC, the
firms are independent businesses, each with policies restricting the
distribution of proprietary and other non-public information, and each
subject to restrictions on disclosure under the U.S. securities laws.
Further, each has a fiduciary obligation not to share proprietary and
non-public information outside the firm. PNC and BlackRock also
represent that they do not share information with each other which is
not generally available to the public that may affect the market price
of securities, although it should be noted that PNC does notify
BlackRock when it is going to be a manager or a member of an
underwriting syndicate at a time that such information may not be
publicly known.\6\
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\6\ This procedure was put into place by PNC and BlackRock in
order to facilitate BlackRock's affiliated investment advisers'
compliance with certain provisions of the 1940 Act, as amended.
These provisions permit such investment advisers to purchase
securities for registered investment companies they advise in
underwritten offerings in which a PNC/BlackRock Related Broker-
Dealer is acting as a co-manager or otherwise participating so long
as an order is not directed to a PNC/BlackRock Related Broker-
Dealer.
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26. Prior applicants for substantially similar relief have further
represented that their business separation policies and procedures are
also structured to restrict the flow of any information to or from the
Asset Manager that could limit its flexibility in managing client
assets, and of information obtained or developed by the Asset Manager
that could be used by other parts of the organization, to the detriment
of the Asset Manager's clients. Because BlackRock and PNC are
independent businesses, no such policies are required.\7\
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\7\ The Applicants represent that no BlackRock Related Entity is
currently in the business of underwriting or placing securities for
third parties. In the event a BlackRock Related Entity engages in
such activities, the Applicants represent that appropriate business
separation policies and procedures would be instituted.
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27. The Applicants represent that major clients of PNC/BlackRock
Related Broker-Dealers include investment management firms that are
competitors of the Asset Manager. Similarly, an Asset Manager deals on
a regular basis with broker-dealers that compete with PNC/BlackRock
Related Broker-Dealers. If special consideration was shown to a PNC/
BlackRock Related Broker-Dealer, such conduct would likely have an
adverse effect on the relationships of the Asset Manager with firms
that compete with such PNC/BlackRock Related Broker-Dealer. Each of the
prior applicants for similar relief have represented that a goal of its
business separation policies is to avoid any possible perception of
improper flows of information in order to prevent any adverse impact on
client and business relationships. Because BlackRock and PNC are
independent businesses, it is represented that no such policies are
required.
Underwriting Compensation
28. The Applicants represent that the underwriters are compensated
through the ``spread,'' or difference, between the price at which the
underwriters purchase the securities from the issuer and the price at
which the securities are sold to the public. The spread is divided into
three components.
[[Page 60330]]
29. The first component includes the management fee, which
generally represents an agreed upon percentage of the overall spread
and is allocated among the lead manager and co-managers. Where there is
more than one managing underwriter, the way the management fee will be
allocated among the managers is generally agreed upon between the
managers and the issuer prior to soliciting indications of interest.
Thus, the allocation of the management fee is not reflective of the
amount of securities that a particular manager sells in an offering.
30. The second component is the underwriting fee, which represents
compensation to the underwriters (including the non-managers, if any)
for the risks they assume in connection with the offering and for the
use of their capital. This component of the spread is also used to
cover the expenses of the underwriting that are not otherwise
reimbursed by the issuer of the securities.
31. The first and second components of the ``spread'' are received
without regard to how the underwritten securities are allocated for
sales purposes or to whom the securities are sold. The third component
of the spread is the selling concession, which generally constitutes 60
percent (60%) or more of the spread. The selling concession compensates
the underwriters for their actual selling efforts. The allocation of
selling concessions among the underwriters generally follows the
allocation of the securities for sales purposes. However, a buyer of
the underwritten securities may designate other broker-dealers (selling
group members) to receive the selling concessions arising from the
securities they purchase.
32. Securities are allocated for sales purposes into two
categories. The first and larger category is the ``institutional pot,''
which is the pot of securities from which sales are made to
institutional investors. Selling concessions for securities sold from
the institutional pot are generally designated by the purchaser to go
to particular underwriters or other broker-dealers. If securities are
sold from the institutional pot, the selling syndicate managers
sometimes receive a portion of the selling concessions, referred to as
a ``fixed designation'' or an ``auto pot split'' attributable to
securities sold in this category, without regard to who sold the
securities or to whom they were sold. For securities covered by this
proposed exemption, however, a PNC/BlackRock Related Broker-Dealer may
not receive, either directly or indirectly, any compensation or
consideration that is attributable to the fixed designation generated
by purchases of securities by an Asset Manager on behalf of its Client
Plans.
33. The second category of allocated securities is ``private
client'' or ``retail,'' which are the securities retained by the
underwriters for sale to their customers. The underwriters receive the
selling concessions from their respective retail retention allocations.
Securities may be shifted between the two categories based upon whether
either category is oversold or undersold during the course of the
offering.
34. The Applicants represent that the inability of a PNC/BlackRock
Related Broker-Dealer to receive any selling concessions, or any
compensation attributable to the fixed designations generated by
purchases of securities by an Asset Manager on behalf of Client Plans,
removes the primary economic incentive for an Asset Manager to make
purchases that are not in the interests of such Client Plans from
offerings for which a PNC/BlackRock Related Broker-Dealer is an
underwriter.
Rule 144A Securities
35. The Applicants represent that a number of the offerings of Rule
144A Securities in which a PNC/BlackRock Related Broker-Dealer
participates represent good investment opportunities for the Asset
Manager's Client Plans. Particularly with respect to foreign
securities, a Rule 144A offering may provide the least expensive and
most accessible means for obtaining these securities. However, as
discussed above, PTE 75-1, Part III, does not cover Rule 144A
Securities. Therefore, absent an exemption, the Asset Manager is
foreclosed from purchasing such securities for its Client Plans in
offerings in which a PNC/BlackRock Related Broker-Dealer participates.
36. The Applicants state that Rule 144A acts as a ``safe harbor''
exemption from the registration provisions of the Securities Act of
1933 (the 1933 Act) for re-sales of certain types of securities to
QIBs. QIBs include several types of institutional entities, such as
employee benefit plans and commingled trust funds holding assets of
such plans, which own and invest on a discretionary basis at least $100
million in securities of unaffiliated issuers.
37. Any securities may be sold pursuant to Rule 144A except for
those of the same class or similar to a class that is publicly traded
in the United States, or certain types of investment company
securities. This limitation is designed to prevent side-by-side public
and private markets developing for the same class of securities and is
the reason that Rule 144A transactions are generally limited to debt
securities.
38. Buyers of Rule 144A Securities must be able to obtain, upon
request, basic information concerning the business of the issuer and
the issuer's financial statements, much of which is the same
information as would be furnished if the offering were registered. This
condition does not apply, however, to an issuer filing reports with the
SEC under the Securities Exchange Act of 1934 (the 1934 Act), for which
reports are publicly available. The condition also does not apply to a
``foreign private issuer'' for whom reports are furnished to the SEC
under Rule 12g3-2(b) of the 1934 Act (17 CFR 240.12g3-2(b)), or to
issuers who are foreign governments or political subdivisions thereof
and are eligible to use Schedule B under the 1933 Act (which describes
the information and documents required to be contained in a
registration statement filed by such issuers).
39. Sales under Rule 144A, like sales in a registered offering,
remain subject to the protections of the anti-fraud rules of federal
and state securities laws. These provisions include section 10(b) of
the 1934 Act and Rule 10b-5 thereunder (17 CFR 240.10b-5) and section
17(a) of the 1933 Act (15 U.S.C. 77a). Through these and other
provisions, the SEC may use its full range of enforcement powers to
exercise its regulatory authority over the market for Rule 144A
Securities, in the event that it detects improper practices.
40. The Applicants represent that this potential liability for
fraud provides a considerable incentive to the issuer of the securities
and the members of the selling syndicate to insure that the information
contained in a Rule 144A offering memorandum is complete and accurate
in all material respects. Among other things, the lead manager
typically obtains an opinion from a law firm, commonly referred to as a
``10b-5'' opinion, stating that the law firm has no reason to believe
that the offering memorandum contains any untrue statement of material
fact or omits to state a material fact necessary in order to make sure
the statements made, in light of the circumstances under which they
were made, are not misleading.
41. The Applicants represent that Rule 144A offerings generally are
structured in the same manner as underwritten registered offerings.
They may be ``negotiated'' offerings, ``competitive bid'' offerings or
``bought deals.'' One difference is that a Rule 144A offering uses an
offering memorandum rather than a prospectus that is filed with the
SEC. The marketing process is substantially
[[Page 60331]]
similar, except that the selling efforts are limited to contacting QIBs
and there are no general solicitations for buyers (e.g., no general
advertising). In addition, contracts for sale may be entered into with
investors and securities may be priced before a selling agreement is
executed (and this is typically the case with respect to sales of
asset-backed securities). Further, generally, there are no non-manager
members in a Rule 144A selling syndicate. The Applicants nonetheless
request that the proposed exemption extend to authorization for
situations where a PNC/BlackRock Related Broker-Dealer acts as manager
or as a member.
42. The proposed exemption is administratively feasible. In this
regard, compliance with the terms and conditions of the proposed
exemption will be verifiable and subject to audit.
43. The Applicants represent that the proposed exemption is in the
interest of participants and beneficiaries of Client Plans that engage
in the covered transactions. In this regard, it is represented that the
proposed exemption will increase the investment opportunities and will
reduce administrative costs for Client Plans.
Further, the Applicants represent that the proposed exemption is
protective of the rights of participants and beneficiaries of affected
Client Plans. In this regard, the notification provisions and other
requirements in the proposed exemption are similar to the conditions
set forth in other exemptions published by the Department in similar
circumstances.
44. In summary, it is represented that the proposed transactions
meet the statutory criteria for an exemption under section 408(a) of
the Act and section 4975(c)(2) of the Code because: (a) The Client
Plans will gain access to desirable investment opportunities; (b) in
each offering, an Asset Manager will purchase the Securities for its
Client Plans from an underwriter or broker-dealer other than a PNC/
BlackRock Related Entity; (c) conditions of the proposed exemption will
restrict the types of Securities that may be purchased, the types of
underwriting or selling syndicates and issuers involved, and the price
and timing of the purchases; (d) the amount of Securities that an Asset
Manager may purchase on behalf of Client Plans will be subject to
percentage limitations; (e) a PNC/BlackRock Related Broker-Dealer will
not be permitted to receive, either directly, indirectly or through
designation, any selling concession with respect to the Securities sold
to an Asset Manager on behalf of an account of a Client Plan; (f) prior
to any purchase of Securities, an Asset Manager will make the required
disclosures to an Independent Fiduciary of each Client Plan and obtain
authorization in accordance with the procedures in the proposed
exemption; (g) an Asset Manager will provide regular reporting to an
Independent Fiduciary of each Client Plan with respect to all
Securities purchased pursuant to the proposed exemption, if granted;
(h) each Client Plan will be subject to net asset requirements, with
certain exceptions for Pooled Funds; and (i) an Asset Manager must have
total assets under management in excess of $5 billion and shareholders'
or partners' equity in excess of $1 million, in addition to qualifying
as a QPAM, pursuant to Part V(a) of PTE 84-14.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by the Applicants 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).
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 does not relieve a fiduciary or other
party in interest or disqualified person from certain other provisions
of the Act, including any prohibited transaction provisions to which
the exemption does not apply and the general fiduciary responsibility
provisions of section 404 of the Act, which require, among other
things, a fiduciary to discharge his or her duties respecting the plan
solely in the interest of the participants and beneficiaries of the
plan and in a prudent fashion in accordance with section 404(a)(1)(B)
of the Act;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act;
(3) Before an exemption can be granted under section 408(a) of the
Act, the Department must find that the exemption is administratively
feasible, in the interest of the plan and of its participants and
beneficiaries and protective of the rights of participants and
beneficiaries of the plan; and
(4) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act, including
statutory or administrative exemptions. Furthermore, the fact that a
transaction is subject to an administrative or statutory exemption is
not dispositive of whether the transaction is in fact a prohibited
transaction.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments and/
or requests for a public hearing on the pending exemption to the
address, as set forth below, within the time frame, as set forth below.
All comments and requests for a public hearing will be made a part of
the record. Comments and hearing requests should state the reasons for
the writer's interest in the proposed exemption. A request for a public
hearing must also state the issues to be addressed and include a
general description of the evidence to be presented at the hearing.
Comments and hearing requests received will also be available for
public inspection with the referenced application at the address, as
set forth below.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department of Labor (the Department) is considering
granting an exemption under the authority of section 408(a) of the
Employee Retirement Income Security Act of 1974 (the Act or ERISA) and
section 4975(c)(2) of the Internal Revenue Code of 1986 (the Code) and
in accordance with the procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990) as follows:
Section I--Covered Transactions
If the proposed exemption is granted, the restrictions of section
406 of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(F) of the Code, shall not apply to the purchase of certain securities
(the Securities), as defined, below in Section IV(k), by an Asset
Manager, as defined, below, in Section IV(f), from any person other
than the Asset Manager or PNC/BlackRock Related Entities, as defined,
below, in Section IV(c), during the existence of an underwriting or
selling syndicate with respect to such Securities, where the Asset
Manager purchases such Securities, as a fiduciary on behalf of an
employee benefit plan or employee benefit plans (Client Plan(s)), as
defined, below, in Section IV(h); or on behalf of Client Plans, and/or
In-House Plans, as defined, below, in
[[Page 60332]]
Section IV(o), which are invested in a pooled fund or in pooled funds
(Pooled Fund(s)), as defined, below, in Section IV(i) under the
following circumstances:
(a) Where a PNC/BlackRock Related Broker-Dealer, as defined, below,
in Section IV(b), is a manager or member of such syndicate (an
affiliated underwriter transaction (AUT)); or
(b) Where a PNC/BlackRock Related Broker-Dealer, as defined, below,
in Section IV(b), is a manager or member of such syndicate and an
Affiliated Servicer, as defined below in Section IV(p), serves as
servicer of a trust that issued the Securities (whether or not debt
securities) (an affiliated servicer transaction (AUT and AST); or
(c) Where an Affiliated Servicer serves as servicer of a trust that
issued the Securities (whether or not debt securities) (AST).
This proposed exemption applies to transactions, as described,
above, in Section I(a) and (b) of this exemption only if the applicable
conditions as set forth, below, in Section II, are satisfied. This
proposed exemption applies to the transaction, as described, above, in
Section I(c) of this exemption, only if all of the conditions, as set
forth, below, in Section III are satisfied.
Section II--Conditions for Transactions Described in Section I(a) and
(b)
The proposed exemption is conditioned upon satisfaction of the
following requirements:
(a)(1) The Securities to be purchased are either--
(i) Part of an issue registered under the Securities Act of 1933
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be
purchased are part of an issue that is exempt from such registration
requirement, such Securities:
(A) Are issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(B) Are issued by a bank,
(C) Are exempt from such registration requirement pursuant to a
federal statute other than the 1933 Act, or
(D) Are the subject of a distribution and are of a class which is
required to be registered under section 12 of the Securities Exchange
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer
that has been subject to the reporting requirements of section 13 of
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days
immediately preceding the sale of such Securities and that has filed
all reports required to be filed thereunder with the Securities and
Exchange Commission (SEC) during the preceding twelve (12) months; or
(ii) Part of an issue that is an Eligible Rule 144A Offering, as
defined in SEC Rule 10f-3 (17 CFR 270.10f 3(a)(4)). Where the Eligible
Rule 144A Offering of the Securities is of equity securities, the
offering syndicate shall obtain a legal opinion regarding the adequacy
of the disclosure in the offering memorandum;
(2) The Securities to be purchased are purchased prior to the end
of the first day on which any sales are made, pursuant to that
offering, at a price that is not more than the price paid by each other
purchaser of the Securities in that offering or in any concurrent
offering of the Securities, except that--
(i) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(ii) If such Securities are debt securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased; and
(3) The Securities to be purchased are offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if--
(i) Such Securities are purchased by others pursuant to a rights
offering; or
(ii) Such Securities are offered pursuant to an over-allotment
option.
(b) The issuer of the Securities to be purchased pursuant to this
proposed exemption must have been in continuous operation for not less
than three (3) years, including the operation of any predecessors,
unless the Securities to be purchased--
(1) are non-convertible debt securities rated in one of the four
highest rating categories by Standard & Poor's Rating Services, Moody's
Investors Service, Inc., Fitch Ratings, Inc., DBRS Limited, DBRS, Inc.,
or any successors thereto (collectively, the Rating Organizations);
provided that none of the Rating Organizations rates such securities in
a category lower than the fourth highest rating category; or
(2) are debt securities issued or fully guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States; or
(3) are debt securities which are fully guaranteed by a person (the
Guarantor) that has been in continuous operation for not less than
three (3) years, including the operation of any predecessors, provided
that such Guarantor has issued other securities registered under the
1933 Act; or if such Guarantor has issued other securities which are
exempt from such registration requirement, such Guarantor has been in
continuous operation for not less than three (3) years, including the
operation of any predecessors, and such Guarantor:
(A) Is a bank, or
(B) Is an issuer of securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(C) Is an issuer of securities that are the subject of a
distribution and are of a class which is required to be registered
under section 12 of the 1934 Act (15 U.S.C. 781), and are issued by an
issuer that has been subject to the reporting requirements of section
13 of the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90)
days immediately preceding the sale of such securities and that has
filed all reports required to be filed hereunder with the SEC during
the preceding twelve (12) months.
(c) The aggregate amount of Securities of an issue purchased,
pursuant to this proposed exemption, by the Asset Manager with: (i) The
assets of all Client Plans; and (ii) the assets, calculated on a pro
rata basis, of all Client Plans and In-House Plans investing in Pooled
Funds managed by the Asset Manager; and (iii) the assets of plans to
which the Asset Manager renders investment advice within the meaning of
29 CFR 2510.3 21(c) does not exceed:
(1) 10 percent (10%) of the total amount of the Securities being
offered in an issue, if such Securities are equity securities;
(2) 35 percent (35%) of the total amount of the Securities being
offered in an issue, if such Securities are debt securities rated in
one of the four highest rating categories by at least one of the Rating
Organizations; provided that none of the Rating Organizations rates
such Securities in a category lower than the fourth highest rating
category; or
(3) 25 percent (25%) of the total amount of the Securities being
offered in an issue, if such Securities are debt
[[Page 60333]]
securities rated in the fifth or sixth highest rating categories by at
least one of the Rating Organizations; provided that none of the Rating
Organizations rates such Securities in a category lower than the sixth
highest rating category; and
(4) The assets of any single Client Plan (and the assets of any
Client Plans and any In-House Plans investing in Pooled Funds) may not
be used to purchase any Securities being offered, if such Securities
are debt securities rated lower than the sixth highest rating category
by any of the Rating Organizations;
(5) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Section II(c)(1), (2), and
(3), above, of this proposed exemption, the amount of Securities in any
issue (whether equity or debt securities) purchased, pursuant to this
proposed exemption, by the Asset Manager on behalf of any single Client
Plan, either individually or through investment, calculated on a pro
rata basis, in a Pooled Fund may not exceed three percent (3%) of the
total amount of such Securities being offered in such issue, and;
(6) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described, above, in Section II(c)(1)-(3) and (5), is the
total of:
(i) The principal amount of the offering of such class of
Securities sold by underwriters or members of the selling syndicate to
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A
(17 CFR 230.144A(a)(1)); plus
(ii) The principal amount of the offering of such class of
Securities in any concurrent public offering.
(d) The aggregate amount to be paid by any single Client Plan in
purchasing any Securities which are the subject of this proposed
exemption, including any amounts paid by any Client Plan or In-House
Plan in purchasing such Securities through a Pooled Fund, calculated on
a pro rata basis, does not exceed three percent (3%) of the fair market
value of the net assets of such Client Plan or In-House Plan, as of the
last day of the most recent fiscal quarter of such Client Plan or In-
House Plan prior to such transaction.
(e) The covered transactions are not part of an agreement,
arrangement, or understanding designed to benefit any PNC/BlackRock
Related Entity.
(f) If the transaction is an AUT, no PNC/BlackRock Related Broker-
Dealer receives, either directly, indirectly, or through designation,
any selling concession, or other compensation or consideration that is
based upon the amount of Securities purchased by any single Client
Plan, or that is based on the amount of Securities purchased by Client
Plans or In-House Plans through Pooled Funds, pursuant to this proposed
exemption. In this regard, a PNC/BlackRock Related Broker-Dealer may
not receive, either directly or indirectly, any compensation or
consideration that is attributable to the fixed designations generated
by purchases of the Securities by the Asset Manager on behalf of any
single Client Plan or any Client Plan or In-House Plan in Pooled Funds.
(g)(1) If the transaction is an AUT, the amount a PNC/BlackRock
Related Broker-Dealer receives in management, underwriting, or other
compensation or consideration is not increased through an agreement,
arrangement, or understanding for the purpose of compensating such PNC/
BlackRock Related Broker-Dealer for foregoing any selling concessions
for those Securities sold pursuant to this proposed exemption. Except
as described above, nothing in this Section II(g)(1) shall be construed
as precluding a PNC/BlackRock Related Broker-Dealer from receiving
management fees for serving as manager of an underwriting or selling
syndicate, underwriting fees for assuming the responsibilities of an
underwriter in the underwriting or selling syndicate, or other
compensation or consideration that is not based upon the amount of
Securities purchased by the Asset Manager on behalf of any single
Client Plan, or on behalf of any Client Plan or In-House Plan
participating in Pooled Funds, pursuant to this proposed exemption; and
(2) Each PNC/BlackRock Related Broker-Dealer shall provide to the
Asset Manager a written certification, signed by an officer of such
PNC/BlackRock Related Broker-Dealer, stating the amount that each such
PNC/BlackRock Related Broker-Dealer received in compensation or
consideration during the past quarter, in connection with any offerings
covered by this proposed exemption, was not adjusted in a manner
inconsistent with Section II(e), (f), or (g) of this proposed
exemption.
(h) The covered transactions are performed under a written
authorization executed in advance by an independent fiduciary of each
single Client Plan (the Independent Fiduciary), as defined, below, in
Section IV(j).
(i) Prior to the execution by an Independent Fiduciary of a single
Client Plan of the written authorization described, above, in Section
II(h), the following information and materials (which may be provided
electronically) must be provided by the Asset Manager to such
Independent Fiduciary:
(1) A copy of the Notice of Proposed Exemption (the Notice) and a
copy of the final exemption (the Grant) as published in the Federal
Register, provided that the Notice and the Grant are supplied
simultaneously; and
(2) Any other reasonably available information regarding the
covered transactions that such Independent Fiduciary requests the Asset
Manager to provide.
(j) Subsequent to the initial authorization by an Independent
Fiduciary of a single Client Plan permitting the Asset Manager to
engage in the covered transactions on behalf of such single Client
Plan, the Asset Manager will continue to be subject to the requirement
to provide within a reasonable period of time any reasonably available
information regarding the covered transactions that the Independent
Fiduciary requests the Asset Manager to provide.
(k)(1) In the case of an existing employee benefit plan investor
(or existing In-House Plan investor, as the case may be) in a Pooled
Fund, such Pooled Fund may not engage in any covered transactions
pursuant to this proposed exemption, unless the Asset Manager provides
the written information, as described, below, and within the time
period described, below, in this Section II(k)(2), to the Independent
Fiduciary of each such plan participating in such Pooled Fund (and to
the fiduciary of each such In-House Plan participating in such Pooled
Fund).
(2) The following information and materials, (which may be provided
electronically) shall be provided by the Asset Manager not less than 45
days prior to such Asset Manager engaging in the covered transactions
on behalf of a Pooled Fund, pursuant to this proposed exemption; and
provided further that the information described, below, in this Section
II(k)(2)(i) and (iii) is supplied simultaneously:
(i) A notice of the intent of such Pooled Fund to purchase
Securities pursuant to this proposed exemption, a copy of this Notice,
and a copy of the Grant, as published in the Federal Register, provided
that the Notice and the Grant are supplied simultaneously;
(ii) Any other reasonably available information regarding the
covered transactions that the Independent Fiduciary of a plan (or
fiduciary of an In-House Plan) participating in a Pooled Fund requests
the Asset Manager to provide; and
[[Page 60334]]
(iii) A termination form expressly providing an election for the
Independent Fiduciary of a plan (or fiduciary of an In-House Plan)
participating in a Pooled Fund to terminate such plan's (or In-House
Plan's) investment in such Pooled Fund without penalty to such plan (or
In-House Plan). Such form shall include instructions specifying how to
use the form. Specifically, the instructions will explain that such
plan (or such In-House Plan) has an opportunity to withdraw its assets
from a Pooled Fund for a period of no more than 30 days after such
plan's (or such In-House Plan's) receipt of the initial notice of
intent, described, above, in Section II(k)(2)(i), and that the failure
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the Asset Manager in the
case of a plan (or In-House Plan) participating in a Pooled Fund by the
specified date shall be deemed to be an approval by such plan (or such
In-House Plan) of its participation in the covered transactions as an
investor in such Pooled Fund.
Further, the instructions will identify the Asset Manager and the
PNC/BlackRock Related Broker-Dealer and the Affiliated Servicer, if
applicable, and will provide the address of the Asset Manager. The
instructions will state that this proposed exemption may be
unavailable, unless the fiduciary of each plan participating in the
covered transactions as an investor in a Pooled Fund is, in fact,
independent of the PNC/BlackRock Related Entities. The instructions
will also state that the fiduciary of each such plan must advise the
Asset Manager, in writing, if it is not an ``Independent Fiduciary,''
as that term is defined, below, in Section IV(j).
For purposes of this Section II(k), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this proposed exemption for each plan
be independent of the PNC/BlackRock Related Entities shall not apply in
the case of an In-House Plan.
(l)(1) In the case of each plan (and in the case of each In-House
Plan) whose assets are proposed to be invested in a Pooled Fund after
such Pooled Fund has satisfied the conditions set forth in this
proposed exemption to engage in the covered transactions, the
investment by such plan (or by such In-House Plan) in the Pooled Fund
is subject to the prior written authorization of an Independent
Fiduciary representing such plan (or the prior written authorization by
the fiduciary of such In-House Plan, as the case may be), following the
receipt by such Independent Fiduciary of such plan (or by the fiduciary
of such In-House Plan, as the case may be) of the written information
described, above, in Section II(k)(2)(i) and (ii); provided that the
Notice and the Grant, described, above, in Section II(k)(2)(i) are
provided simultaneously.
(2) For purposes of this Section II(l), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this proposed exemption for each plan
proposing to invest in a Pooled Fund be independent of the PNC/
BlackRock Related Entities shall not apply in the case of an In-House
Plan.
(m) Subsequent to the initial authorization by an Independent
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest
in a Pooled Fund that engages in the covered transactions, the Asset
Manager will continue to be subject to the requirement to provide
within a reasonable period of time any reasonably available information
regarding the covered transactions that the Independent Fiduciary of
such plan (or the fiduciary of such In-House Plan, as the case may be)
requests the Asset Manager to provide.
(n) At least once every three months, and not later than 45 days
following the period to which such information relates, the Asset
Manager shall furnish:
(1) In the case of each single Client Plan that engages in the
covered transactions, the information described, below, in this Section
II(n)(3)-(7), to the Independent Fiduciary of each such single Client
Plan.
(2) In the case of each Pooled Fund in which a Client Plan (or in
which an In-House Plan) invests, the information described, below, in
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each
such Client Plan (and to the fiduciary of each such In-House Plan)
invested in such Pooled Fund.
(3) A quarterly report (the Quarterly Report) (which may be
provided electronically) which discloses all the Securities purchased
pursuant to this proposed exemption during the period to which such
report relates on behalf of the Client Plan, In-House Plan, or Pooled
Fund to which such report relates, and which discloses the terms of
each of the transactions described in such report, including:
(i) The type of Securities (including the rating of any Securities
which are debt securities) involved in each transaction;
(ii) The price at which the Securities were purchased in each
transaction;
(iii) The first day on which any sale was made during the offering
of the Securities;
(iv) The size of the issue of the Securities involved in each
transaction;
(v) The number of Securities purchased by the Asset Manager for the
Client Plan, In-House Plan, or Pooled Fund to which the transaction
relates;
(vi) The identity of the underwriter from whom the Securities were
purchased for each transaction;
(vii) The underwriting spread in each transaction (i.e., the
difference, between the price at which the underwriter purchases the
securities from the issuer and the price at which the securities are
sold to the public);
(viii) The price at which any of the Securities purchased during
the period to which such report relates were sold;
(ix) The market value at the end of the period to which such report
relates of the Securities purchased during such period and not sold;
and
(x) In the case of an AST, the basis upon which the Affiliated
Servicer is compensated;
(4) The Quarterly Report contains:
(i) A representation that the Asset Manager has received a written
certification signed by an officer of each PNC/BlackRock Related
Broker-Dealer, as described, above, in Section II(g)(2), affirming
that, as to each AUT covered by this proposed exemption during the past
quarter, such PNC/BlackRock Related Broker-Dealer acted in compliance
with Section II(e), (f), and (g) of this proposed exemption. In the
case of an AST, a representation of the asset Manager affirming that,
as to each AST, the transaction was not part of an arrangement or
understanding designed to benefit the Affiliated Servicer; and
(ii) A representation that copies of such certifications will be
provided upon request;
(5) A disclosure in the Quarterly Report that states that any other
reasonably available information regarding a covered transaction that
an Independent Fiduciary (or fiduciary of an In-House Plan) requests
will be provided, including, but not limited to:
(i) The date on which the Securities were purchased on behalf of
the Client Plan (or the In-House Plan) to which the disclosure relates
(including Securities purchased by Pooled Funds in which such Client
Plan (or such In-House Plan) invests;
(ii) The percentage of the offering purchased on behalf of all
Client Plans (and the pro rata percentage purchased on behalf of Client
Plans and In-House Plans investing in Pooled Funds); and
(iii) The identity of all members of the underwriting syndicate;
[[Page 60335]]
(6) The Quarterly Report discloses any instance during the past
quarter where the Asset Manager was precluded for any period of time
from selling Securities purchased under this proposed exemption in that
quarter because of its relationship to a PNC/BlackRock Related Broker-
Dealer or of an Affiliated Servicer and the reason for this
restriction;
(7) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each single Client Plan
that engages in the covered transactions that the authorization to
engage in such covered transactions may be terminated, without penalty
to such single Client Plan, within five (5) days after the date that
the Independent Fiduciary of such single Client Plan informs the person
identified in such notification that the authorization to engage in the
covered transactions is terminated; and
(8) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each Client Plan (and to
the fiduciary of each In-House Plan) that engages in the covered
transactions through a Pooled Fund that the investment in such Pooled
Fund may be terminated, without penalty to such Client Plan (or such
In-House Plan), within such time as may be necessary to effect the
withdrawal in an orderly manner that is equitable to all withdrawing
plans and to the non-withdrawing plans, after the date that the
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such
notification that the investment in such Pooled Fund is terminated.
(o) For purposes of engaging in covered transactions, each Client
Plan (and each In-House Plan) shall have total net assets with a value
of at least $50 million (the $50 Million Net Asset Requirement). For
purposes of engaging in covered transactions involving an Eligible Rule
144A Offering, each Client Plan (and each In-House Plan) shall have
total net assets of at least $100 million in securities of issuers that
are not affiliated with such Client Plan (or such In-House Plan, as the
case may be) (the $100 Million Net Asset Requirement).
For purposes of a Pooled Fund engaging in covered transactions,
each Client Plan (and each In-House Plan) in such Pooled Fund shall
have total net assets with a value of at least $50 million.
Notwithstanding the foregoing, if each such Client Plan (and each such
In-House Plan) in such Pooled Fund does not have total net assets with
a value of at least $50 million, the $50 Million Net Asset Requirement
will be met, if 50 percent (50%) or more of the units of beneficial
interest in such Pooled Fund are held by Client Plans (or by In-House
Plans) each of which has total net assets with a value of at least $50
million. For purposes of a Pooled Fund engaging in covered transactions
involving an Eligible Rule 144A Offering, each Client Plan (and each
In-House Plan) in such Pooled Fund shall have total net assets of at
least $100 million in securities of issuers that are not affiliated
with such Client Plan (or such In-House Plan, as the case may be).
Notwithstanding the foregoing, if each such Client Plan (and each such
In-House Plan) in such Pooled Fund does not have total net assets of at
least $100 million in securities of issuers that are not affiliated
with such Client Plan (or In-House Plan, as the case may be), the $100
Million Net Asset Requirement will be met if 50 percent (50%) or more
of the units of beneficial interest in such Pooled Fund are held by
Client Plans (or by In-House Plans) each of which have total net assets
of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (or such In-House Plan, as the case
may be), and the Pooled Fund itself qualifies as a QIB, as determined
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
For purposes of the net asset requirements described, above, in
this Section II(o), where a group of Client Plans is maintained by a
single employer or controlled group of employers, as defined in section
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the
case of an Eligible Rule 144A Offering, the $100 Million Net Asset
Requirement) may be met by aggregating the assets of such Client Plans,
if the assets of such Client Plans are pooled for investment purposes
in a single master trust.
(p) No more than 20 percent of the assets of a Pooled Fund, at the
time of a covered transaction, are comprised of assets of In-House
Plans for which the Asset Manager, a PNC/BlackRock Related Entity or
the Affiliated Servicer exercises investment discretion.
(q) The Asset Manager and the PNC/BlackRock Related Broker-Dealer,
as applicable, maintain, or cause to be maintained, for a period of six
(6) years from the date of any covered transaction such records as are
necessary to enable the persons, described, below, in Section II(r), to
determine whether the conditions of this proposed exemption have been
met, except that--
(1) No party in interest with respect to a plan which engages in
the covered transactions, other than the Asset Manager, and the PNC/
BlackRock Related Broker-Dealer or Affiliated Servicer, as applicable,
shall be subject to a civil penalty under section 502(i) of the Act or
the taxes imposed by section 4975(a) and (b) of the Code, if such
records are not maintained, or not available for examination, as
required, below, by Section II(r); and
(2) A prohibited transaction shall not be considered to have
occurred if, due to circumstances beyond the control of the Asset
Manager, or the PNC/BlackRock Related Broker-Dealer, or the Affiliated
Servicer, as applicable, such records are lost or destroyed prior to
the end of the six year period.
(r)(1) Except as provided, below, in Section II(r)(2), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to, above, in Section II(q) are
unconditionally available at their customary location for examination
during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
(ii) Any fiduciary of any plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary; or
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a plan that engages
in the covered transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(2) None of the persons described, above, in Section II(r)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the Asset Manager,
or the PNC/BlackRock Related Broker-Dealer, or the Affiliated Servicer,
or commercial or financial information which is privileged or
confidential; and
(3) Should the Asset Manager, or the PNC/BlackRock Related Broker-
Dealer or the Affiliated Servicer refuse to disclose information on the
basis that such information is exempt from disclosure, pursuant to
Section II(r)(2), above, the Asset Manager shall, by the close of the
thirtieth (30th) day following the request, provide a written notice
advising that person of the reasons for the refusal and that the
Department may request such information.
[[Page 60336]]
Section III--Conditions for Transactions Described in Section I(c)
The proposed exemption is conditioned upon satisfaction of the
following requirements:
(a) The Securities to be purchased are pass-through certificates or
trust certificates that represent a beneficial ownership interest in
the assets of an issuer which is a trust and which entitles the holder
to payments of principal, interest and/or other payments made with
respect to the assets of such trust and the corpus or assets of which
consist solely of obligations that bear interest or are purchased at a
discount and which are secured by commercial real property (including
obligations secured by leasehold interests on commercial real property)
that are rated in one of the four highest rating categories by the
Rating Organizations; provided that none of the Rating Organizations
rates such securities in a category lower than the fourth highest
rating category (CMBS).
(b) The purchase of the CMBS meets the conditions of an applicable
underwriter exemption (the Underwriter Exemption(s)). The Underwriter
Exemptions are a group of individual exemptions granted by the
Department to provide relief for the origination and operation of
certain asset pool investment trusts and the acquisition, holding, and
disposition by plans of certain asset-backed pass-through certificates
representing undivided interests in those investment trusts. The most
recent amendment to the Underwriter Exemptions is PTE 2007-05, 72 FR
13130 (March 20, 2007), Technical Correction at 72 FR 16385 (April 4,
2007) (PTE 2007-05).
(c)(1) The aggregate amount of CMBS of an issue purchased, pursuant
to this proposed exemption, by the Asset Manager with:
(i) The assets of all Client Plans; and
(ii) The assets, calculated on a pro rata basis, of all Client
Plans and In-House Plans investing in Pooled Funds managed by the Asset
Manager; and
(iii) The assets of plans to which the Asset Manager renders
investment advice within the meaning of 29 CFR Sec. 2510.3-21(c) does
not exceed 35 percent (35%) of the total amount of the CMBS being
offered in an issue.
(2) Notwithstanding the percentage of CMBS of an issue permitted to
be acquired, as set forth in Section III(c)(1) of this proposed
exemption, the amount of CMBS in any issue purchased, pursuant to this
proposed exemption, by the Asset Manager on behalf of any single Client
Plan, either individually or through investment, calculated on a pro
rata basis, in a Pooled Fund may not exceed three percent (3%) of the
total amount of such CMBS being offered in such issue, and;
(3) If purchased in an Eligible Rule 144A Offering, the total
amount of the CMBS being offered for purposes of determining the
percentages, described in this Section III(c), is the total of:
(i) The principal amount of the offering of such class of CMBS sold
by underwriters or members of the selling syndicate to QIBs; plus
(ii) The principal amount of the offering of such class of CMBS in
any concurrent public offering.
(d) The aggregate amount to be paid by any single Client Plan in
purchasing any CMBS which are the subject of this proposed exemption,
including any amounts paid by any Client Plan or In-House Plan in
purchasing such CMBS through a Pooled Fund, calculated on a pro rata
basis, does not exceed three percent (3%) of the fair market value of
the net assets of such Client Plan or In-House Plan, as of the last day
of the most recent fiscal quarter of such Client Plan or In-House Plan
prior to such transaction.
(e) The covered transactions are not part of an agreement,
arrangement, or understanding designed to benefit any PNC/BlackRock
Related Entity.
(f) The covered transactions are performed under a written
authorization executed in advance by an Independent Fiduciary of each
single Client Plan, as defined, below, in Section IV(j).
The written authorization requirement of this paragraph shall be
deemed satisfied with respect to the covered transactions involving
ASTs if the Asset Manager provides to the Independent Fiduciary the
materials described in Section III(g), below, together with a
termination form expressly providing an election for the Independent
Fiduciary to terminate the authorization with respect to the covered
transactions and a statement to the effect that the Asset Manager
proposes to engage in the covered transactions on a specified date
(that shall be not less than 45 days after the notice is sent to the
Independent Fiduciary) unless the Independent Fiduciary signs and
returns the termination form to the Asset Manager prior to such date.
(g) The following information and materials (which may be provided
electronically) must be provided by the Asset Manager to the
Independent Fiduciary not less than 45 days prior to such Asset Manager
engaging in the covered transactions pursuant to this proposed
exemption:
(1) A notice of the intent of the Asset Manager to purchase CMBS
pursuant to Section I(c) of this exemption, a copy of the Notice, and a
copy of the Grant, as published in the Federal Register, provided that
the Notice and the Grant are supplied simultaneously;
(2) A notice describing the relationship of the Affiliated Servicer
to the Asset Manager.
(3) The basis upon which the Affiliated Servicer is compensated and
a representation by the Asset Manager affirming that, the transaction
was not part of an agreement, arrangement, or understanding designed to
benefit the Affiliated Servicer; and
(4) Any other reasonably available information regarding the
covered transactions that the Independent Fiduciary requests the Asset
Manager to provide.
(h) Subsequent to the initial authorization by an Independent
Fiduciary of a single Client Plan permitting the Asset Manager to
engage in the covered transactions on behalf of such single Client
Plan, the Asset Manager will continue to be subject to the requirement
to provide within a reasonable period of time any other reasonably
available information regarding the covered transactions that the
Independent Fiduciary requests the Asset Manager to provide.
(i)(1) In the case of an existing employee benefit plan investor
(or existing In-House Plan investor, as the case may be) in a Pooled
Fund, such Pooled Fund may not engage in any covered transactions
pursuant to Section I(c) of this proposed exemption, unless the Asset
Manager provides the written information, as described, below, and
within the time period described, below, in this Section III(i)(2), to
the Independent Fiduciary of each such plan participating in such
Pooled Fund (and to the fiduciary of each such In-House Plan
participating in such Pooled Fund).
(2) The following information and materials, (which may be provided
electronically) shall be provided by the Asset Manager not less than 45
days prior to such Asset Manager engaging in the covered transactions
on behalf of a Pooled Fund, pursuant to this proposed exemption; and
provided further that the information described, below, in this Section
III(i)(2)(i) and (iii) is supplied simultaneously:
(i) A notice of the intent of such Pooled Fund to purchase CMBS
pursuant to this proposed exemption, a copy of this Notice, and a copy
of the Grant, as published in the Federal Register;
[[Page 60337]]
(ii) A notice describing the relationship of the Affiliated
Servicer to the Asset Manager;
(iii) Information on the basis upon which the Affiliated Servicer
is compensated and a representation by the Asset Manager affirming that
the transaction was not part of an agreement, arrangement, or
understanding designed to benefit the Affiliated Servicer; and
(iv) Any other reasonably available information regarding the
covered transactions that the Independent Fiduciary of a plan (or
fiduciary of an In-House Plan) participating in a Pooled Fund requests
the Asset Manager to provide; and
(v) A termination form expressly providing an election for the
Independent Fiduciary of a plan (or fiduciary of an In-House Plan)
participating in a Pooled Fund to terminate such plan's (or In-House
Plan's) investment in such Pooled Fund without penalty to such plan (or
In-House Plan). Such form shall include instructions specifying how to
use the form. Specifically, the instructions will explain that such
plan (or such In-House Plan) has an opportunity to withdraw its assets
from a Pooled Fund for a period of no more than 30 days after such
plan's (or such In-House Plan's) receipt of the initial notice of
intent, described, above, in Section III(i)(2)(i), and that the failure
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the Asset Manager in the
case of a plan (or In-House Plan) participating in a Pooled Fund by the
specified date shall be deemed to be an approval by such plan (or such
In-House Plan) of its participation in the covered transactions as an
investor in such Pooled Fund.
Further, the instructions will identify the Asset Manager and the
Affiliated Servicer and will provide the address of the Asset Manager.
For purposes of this Section III(i), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I(c) of this proposed exemption for each
plan be independent of the PNC/BlackRock Related Entities shall not
apply in the case of an In-House Plan.
(j)(1) In the case of each plan (and in the case of each In-House
Plan) whose assets are proposed to be invested in a Pooled Fund after
such Pooled Fund has satisfied the conditions set forth in this
proposed exemption to engage in the covered transactions, the
investment by such plan (or by such In-House Plan) in the Pooled Fund
is subject to the prior written authorization of an Independent
Fiduciary representing such plan (or the prior written authorization by
the fiduciary of such In-House Plan, as the case may be), following the
receipt by such Independent Fiduciary of the plan (or by the fiduciary
of the In-House Plan, as the case may be) of the written information
described, above, in Section III(i)(2); provided that the Notice and
the Grant, described, above, in Section III(i)(2)(i) are provided
simultaneously. The written authorization requirement of this paragraph
shall be deemed satisfied with respect to the covered transactions
involving ASTs if the Asset Manager provides to the Independent
Fiduciary the materials described in Section III(i)(2) above, together
with a termination form expressly providing an election for the
Independent Fiduciary to terminate the authorization with respect to
the covered transactions and a statement to the effect that the Asset
Manager proposes to engage in the covered transactions on a specified
date (that shall be not less than 45 days after the notice is sent to
the Independent Fiduciary) unless the Independent Fiduciary signs and
returns the termination form to the Asset Manager prior to such date.
(2) For purposes of this Section III(j), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I(c) of this proposed exemption for each
plan proposing to invest in a Pooled Fund be independent of the PNC/
BlackRock Related Entities shall not apply in the case of an In-House
Plan.
(k) Subsequent to the initial authorization by an Independent
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest
in a Pooled Fund that engages in the covered transactions, the Asset
Manager will continue to be subject to the requirement to provide
within a reasonable period of time any reasonably available information
regarding the covered transactions that the Independent Fiduciary of
such plan (or the fiduciary of such In-House Plan, as the case may be)
requests the Asset Manager to provide.
(l) The requirements of Section II(o), (p) and (q) are met.
Section IV--Definitions
(a) The term, ``the Applicants,'' means BlackRock Inc. and the PNC
Financial Services Group, Inc.
(b) The term, ``PNC/BlackRock Related Broker-Dealer,'' means any
broker dealer that is a PNC/BlackRock Related Entity that meets the
requirements of this proposed exemption. Such PNC/BlackRock Related
Broker-Dealer may participate in an underwriting or selling syndicate
as a manager or member. The term, ``manager,'' means any member of an
underwriting or selling syndicate who, either alone or together with
other members of the syndicate, is authorized to act on behalf of the
members of the syndicate in connection with the sale and distribution
of the Securities, as defined, below, in Section IV(k), being offered
or who receives compensation from the members of the syndicate for its
services as a manager of the syndicate.
(c) The term, ``PNC/BlackRock Related Entity(s)'' includes all
entities listed in this Section IV(c)(i) and (ii):
(i) PNC and any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with PNC, and
(ii) BlackRock and any person directly or indirectly, through one
or more intermediaries, controlling, controlled by, or under common
control with, BlackRock. For purposes of this proposed exemption, the
definition of a PNC/BlackRock Related Entity shall include any entity
that satisfies such definition in the future.
(d) The term, ``BlackRock Related Entity'' or ``BlackRock Related
Entities,'' means BlackRock and any person directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with BlackRock.
(e) The term, ``PNC Related Entity'' or ``PNC Related Entities,''
means PNC and any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with PNC.
(f) The term, ``Asset Manager,'' means a BlackRock Related Entity,
as defined, above, in Section IV(d) or a PNC Related Entity, as defined
above, in Section IV(e). For purposes of this proposed exemption, the
Asset Manager must qualify as a ``qualified professional asset
manager'' (QPAM), as that term is defined under section V(a) of PTE 84-
14. In addition to satisfying the requirements for a QPAM under section
V(a) of PTE 84-14, (49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305
(Aug. 23, 2005)), the Asset Manager must also have total client assets
under its management and control in excess of $5 billion, as of the
last day of its most recent fiscal year and shareholders' or partners'
equity in excess of $1 million.
(g) The term, ``control,'' means the power to exercise a
controlling influence over the management or
[[Page 60338]]
policies of a person other than an individual.
(h) The term, ``Client Plan(s),'' means an employee benefit plan or
employee benefit plans that are subject to the Act and/or the Code, and
for which plan(s) an Asset Manager exercises discretionary authority or
discretionary control respecting management or disposition of some or
all of the assets of such plan(s), but excludes In-House Plans, as
defined, below, in Section IV(o).
(i) The term, ``Pooled Fund(s),'' means a common or collective
trust fund(s) or a pooled investment fund(s):
(1) In which employee benefit plan(s) subject to the Act and/or
Code invest,
(2) Which is maintained by an Asset Manager, and
(3) For which such Asset Manager exercises discretionary authority
or discretionary control respecting the management or disposition of
the assets of such fund(s).
(j)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a
plan who is unrelated to, and independent of any PNC/BlackRock Related
Entity. For purposes of this proposed exemption, a fiduciary of a plan
will be deemed to be unrelated to, and independent of any PNC/BlackRock
Related Entity, if such fiduciary represents that neither such
fiduciary, nor any individual responsible for the decision to authorize
or terminate authorization for the transactions described, above, in
Section I of this proposed exemption, is an officer, director, or
highly compensated employee (within the meaning of section
4975(e)(2)(H) of the Code) of any PNC/BlackRock Related Entity, and
represents that such fiduciary shall advise the Asset Manager within a
reasonable period of time after any change in such facts occurs.
(2) Notwithstanding anything to the contrary in this Section IV(j),
a fiduciary of a plan is not independent:
(i) If such fiduciary, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with any PNC/BlackRock Related Entity;
(ii) If such fiduciary directly or indirectly receives any
compensation or other consideration from any PNC/BlackRock Related
Entity for his or her own personal account in connection with any
transaction described in this proposed exemption;
(iii) If any officer, director, or highly compensated employee
(within the meaning of section 4975(e)(2)(H) of the Code) of the Asset
Manager responsible for the transactions described, above, in Section I
of this proposed exemption, is an officer, director, or highly
compensated employee (within the meaning of section 4975(e)(2)(H) of
the Code) of the sponsor of a plan or of the fiduciary responsible for
the decision to authorize or terminate authorization for the
transactions described, above, in Section I. However, if such
individual is a director of the sponsor of a plan or of the responsible
fiduciary, and if he or she abstains from participation in: (A) The
choice of such plan's investment manager/adviser; and (B) the decision
to authorize or terminate authorization for transactions described,
above, in Section I, then Section IV(j)(2)(iii) shall not apply.
(3) The term, ``officer,'' means a president, any vice president in
charge of a principal business unit, division, or function (such as
sales, administration, or finance), or any other officer who performs a
policy-making function for a PNC/BlackRock Related Entity.
(k) The term, ``Securities,'' shall have the same meaning as
defined in section 2(36) of the Investment Company Act of 1940 (the
1940 Act), as amended (15 U.S.C. 80a 2(36) (1996)). For purposes of
this proposed exemption, mortgage-backed or other asset backed
securities rated by one of the Rating Organizations, as defined, below,
in Section IV(n), will be treated as debt securities.
(l) The term, ``Eligible Rule 144A Offering,'' shall have the same
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4))
under the 1940 Act.
(m) The term, ``qualified institutional buyer,'' or the term,
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17
CFR 230.144A(a)(1)) under the 1933 Act.
(n) The term, ``Rating Organizations,'' means Standard & Poor's
Rating Services, Moody's Investors Service, Inc., Fitch Ratings Inc.,
DBRS Limited, or DBRS, Inc., or any successors thereto.
(o) The term, ``In-House Plan(s),'' means an employee benefit
plan(s) that is subject to the Act and/or the Code, and that is
sponsored by:
(1) A PNC Related Entity, as defined, above, in Section IV(e), or
(2) A BlackRock Related Entity, as defined, above, in Section
IV(d), for their respective employees.
(p) The term ``Affiliated Servicer'' means a PNC/BlackRock Related
Entity that serves as a servicer of one or more of the commercial
mortgage loans in a Pooled Fund that issues commercial mortgage-backed
securities.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations contained
in the application for exemption are true and complete and accurately
describe all material terms of the transactions. In the case of
continuing transactions, if any of the material facts or
representations described in the applications change, the exemption
will cease to apply as of the date of such change. In the event of any
such change, an application for a new exemption must be made to the
Department.
Signed at Washington, DC, this 6th day of October 2008.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-24100 Filed 10-9-08; 8:45 am]
BILLING CODE 4510-29-P
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