[Federal Register: May 9, 2008 (Volume 73, Number 91)]
[Notices]
[Page 26415-26431]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my08-105]
=======================================================================
----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Nos. D-11363 & D-11435]
Proposed Exemptions Involving: D-11363--Citation Box and Paper
Co. Profit Sharing Plan and Retirement Trust; and D-11435--Merrill
Lynch & Co., Inc. and BlackRock, Inc.
AGENCY: Employee Benefits Security Administration, Labor
ACTION: Notice of proposed exemption.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemption, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three
[[Page 26416]]
copies) should be sent to the Employee Benefits Security Administration
(EBSA), Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ----, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The application for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by the applicant and the Department
within 15 days of the date of publication in the Federal Register. Such
notice shall include a copy of the notice of proposed exemption as
published in the Federal Register and shall inform interested persons
of their right to comment and to request a hearing (where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemption was requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, this notice of proposed exemption is
issued solely by the Department.
The application contains representations with regard to the
proposed exemption which is summarized below. Interested persons are
referred to the application on file with the Department for a complete
statement of the facts and representations.
Citation Box and Paper Co. Profit Sharing Plan and Retirement Trust
(the Plan), Located in Chicago, Illinois
[Exemption Application Number: D-11363].
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570 Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a)(1)(A) and (D), and
sections 406(b)(1) and (b)(2) of the Act, and the sanctions resulting
from the application of section 4975 of the Code, by reason of sections
4975(c)(1)(A), (D), and (E) of the Code, shall not apply to the
proposed sale of improved real property (the Property) by the Plan to a
partnership to be comprised of Anthony J. Kostiuk (the Applicant and
Plan Fiduciary), Anthony L. Kostiuk, Edmund Chmiel, Andre Frydl, and
David Marinier, each of whom is a party in interest with respect to the
Plan, provided that the following conditions are satisfied:
(a) The sale is a one-time transaction for cash;
(b) As a result of the sale, the Plan receives the greater of: (i)
$975,000; (ii) The fair market value of the Property as of the date of
the transaction as determined by a qualified, independent appraiser; or
(iii) The cost to the Plan to acquire and hold the Property;
(c) The Plan pays no commissions, fees or other expenses in
connection with the sale;
(d) The terms and conditions of the sale are at least as favorable
as those obtainable in an arm's length transaction with an unrelated
third party;
(e) With respect to any lease payments for the occupancy of the
Property that were made by the Citation Box and Paper Co. (the Company)
to the Plan on or after July 1, 1996 and which (in the opinion of an
MAI-certified, qualified independent appraiser) amounted to less than
the fair market rental value of the Property at the time of such
payment, the Company reimburses the Plan, prior to publication of a
final grant of this requested prohibited transaction exemption, for the
full amount of all such rental shortfalls in the form of a lump sum
payment in arrears plus interest as calculated in conformity with the
requirements of section 5(b)(5) of the Department's Voluntary Fiduciary
Correction (VFC) Program described at 71 FR 20262 (April 19, 2006); and
(f) To the extent that there are rental shortfalls referenced in
paragraph (e), the Applicant shall provide the Department with all
relevant documentation pertaining to the calculation of such shortfall
(including the fair market rental value of the Property for each
applicable lease year, the amount of the rental shortfall for each
year, the interest attributable to the rental shortfall for each year,
and proof that the reimbursement was paid to the Plan) prior to
publication of a final grant of this requested prohibited transaction
exemption.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan sponsored
by the Citation Box and Paper Co. (the Company), which is headquartered
in Chicago, Illinois. As of June 30, 2006, the Plan had approximately
34 participants and total assets of approximately $3,107,545. The
Plan's current and sole trustee is the Applicant, who is also a
participant in the Plan and the owner of the Company. Anthony L.
Kostiuk, Edmund Chmiel, Andre Frydl, and David Marinier are also
participants in the Plan and, together with the Applicant, intend to
establish a partnership that will purchase a parcel of improved real
property (the Property), located at 4700 West Augusta Boulevard in
Chicago, Illinois, from the Plan. The Applicant states that, in
submitting this exemption application to the Department, he is
authorized to represent the interests of his intended co-partners
(Messrs. A. L. Kostiuk, Chmiel, Frydl, and Marinier) in the acquisition
of the Property from the Plan.
2. The Applicant represents that the Property covers a gross area
of 76,444 square feet, and is irregular in shape. The Applicant
represents that the Property was acquired by the Plan from the Company
on November 18, 1971 at a cost of $294,000.\1\ The Property contains a
two-story loft industrial structure (the Building) that houses the
Company's warehouse and office facilities. The Applicant represents
that the surface area of the Building at ground level totals 41,821
square feet.
---------------------------------------------------------------------------
\1\ The Applicant has provided a copy of the 1984 exemption
application (the 1984 Application) submitted on behalf of the Plan
which culminated in the grant of PTE 85-7. The 1984 Application
states that the Property was originally purchased by the Plan in
1971 for a price of $294,000. According to the Applicant, the 1984
Notice of Proposed Exemption (49 FR 43131, October 26, 1984)
contains a typographical error, because it states that the Property
was acquired by the Plan for $249,000. In addition, the Notice of
Proposed Exemption states that the Property is approximately 76,000
square feet in area; In the current application, as noted above, the
Applicant represents that the more precise figure is 76,444 square
feet.
---------------------------------------------------------------------------
The Applicant represents that a parcel of land adjacent to the
Property (the Adjacent Parcel) previously owned by the Belt Railway
Company (the Railway) of Chicago was purchased in 2005 by
[[Page 26417]]
Citation Properties, LLC, a single-member limited liability company
whose sole member is the Applicant. Prior to its acquisition by the
Company, the Applicant represents that Adjacent Parcel had been leased
to the Company by the Railway to provide parking facilities, as well as
access to and egress from the Property. The Applicant represents that
this lease predated the Department's issuance of a previous
administrative exemption, PTE 85-7 (50 FR 1006, January 8, 1985),
involving the Plan and the Property at issue in this proposal. The
Applicant represents that the Adjacent Parcel is rectangular in shape
and covers an area of 17,600 square feet. The Applicant represents that
the Plan has not paid the Company or Citation Properties, LLC for the
use of the Adjacent Parcel since it was acquired from the Railway. The
Applicant also represents that the remaining lots adjacent to the
Property are owned by persons unrelated to the Company, the Applicant,
and the intended co-partners.
3. PTE 85-7 (the Original Exemption) permitted the Plan to lease
the Property to the Company on a continuous basis on or after July 1,
1984, provided that ``the terms and conditions of such leasing are at
least as favorable to the Plan as those which the Plan could receive in
a similar transaction with an unrelated party.'' The material facts and
representations supporting the Department's grant of the Original
Exemption were contained in a Notice of Proposed Exemption published on
October 26, 1984, at 49 FR 43131 (the 1984 Notice).
4. Since it acquired the Property in 1971, the Plan has leased the
Property to the Company on a continuous basis. Each of the successive
lease agreements executed between the Plan and the Company since the
time of the acquisition have been ``absolute net leases'' requiring the
company to be responsible for all upkeep, repair, fire insurance
premiums, and taxes on the Property. According to the Summary of Facts
and Representations contained in the 1984 Notice published prior to the
issuance of PTE 85-7, the Original Exemption was intended to permit the
continued leasing (the Lease) of the Property by the Plan to the
Company until June 30, 1994, with three five-year options from such
date.
The 1984 Notice further stated that ``[t]he Lease provides that for
each three-year period during the initial ten-year term and during each
option period thereafter the rental amount would be adjusted based upon
an MAI appraisal report as to the then-current fair rental value.'' The
terms of the original Lease executed on January 16, 1984, stipulated
that the fair rental value of the Property would be updated two months
prior to July 1, 1987 (and triennially thereafter through the year
2008), by an independent, MAI-certified appraiser.
5. According to the 1984 Notice, an independent fiduciary
(originally Unibanc Trust Company, subsequently replaced in March of
1986 by Harris Trust and Savings Bank (Harris Trust)) was to exercise
authority and control over and have responsibility for the operation of
the lease. In addition, the 1984 Notice represented that this fiduciary
was to have sole discretion to monitor the lease and enforce the rights
of the Plan under the terms and conditions of any such lease.\2\ In
April of 2004, the Company informed Harris Trust that it was exercising
its option under the lease agreement to extend the term of the lease
for an additional period of five years beginning on July 1, 2004, and
ending on June 30, 2009.
---------------------------------------------------------------------------
\2\ The Department expresses no opinion herein as to whether the
Plan's continued ownership and leasing of the Property is consistent
with the general fiduciary responsibility provisions of Part 4 of
Title I of the Act.
---------------------------------------------------------------------------
The Applicant represents that Harris Trust notified the Company in
April of 2004 that it would no longer serve as an independent fiduciary
to the Plan after May 31, 2004, because it was no longer providing
retirement plan services to its clients. This line of business was sold
by Harris Trust to another financial institution, Wells Fargo
Investment and Trust Company (Wells Fargo). Upon receiving notification
of Harris Trust's withdrawal, the Plan Fiduciary contacted Wells Fargo
to inquire about its willingness to serve as a replacement independent
fiduciary with respect to the monitoring of the Lease described in the
Original Exemption. While it did assume various retirement plan
services for the Plan previously performed by Harris Trust, Wells Fargo
declined the Plan Fiduciary's request to serve as an independent
fiduciary with respect to the Lease. The Applicant represents that the
Plan Fiduciary then approached two other financial institutions to
serve as a replacement independent fiduciary. However, neither of these
institutions expressed a willingness to serve the Plan in such a
capacity.
6. As part of its current exemption application with the
Department, the Plan Fiduciary submitted copies of a series of fair
market rental appraisals of the Property for several prior lease terms.
The applicant represents that each of these prior appraisals was
prepared by a qualified, independent appraiser, Urban Real Estate
Research, Inc. (Urban Real Estate) of Chicago, Illinois, and signed by
Mr. Arthur J. Murphy, MAI, a certified general real estate appraiser
licensed by the State of Illinois. In each of these appraisal reports,
Urban Real Estate reported that the Property covered an approximate
area of 72,844 square feet. In providing this approximate square
footage figure (which is less than the 76,444 square foot area
represented by the Applicant as the accurate size of the Property), the
Applicant represents that Urban Real Estate used the measurement from
the Realty Atlas Map. The Applicant also represents that the Realty
Atlas Map is almost illegible, and appeared to indicate that the
Property occupied approximately 241.31 feet of frontage along the north
side of West Augusta Boulevard. The Applicant further represents,
however, that a plat of survey conducted by the National Survey
Service, Inc. shows that the actual frontage is actually 291.31 feet, a
50-foot difference. The Applicant also acknowledges that, since at
least July 1, 2006 (i.e., during the pendency of the current prohibited
transaction exemption request), the annual rent paid by the Company to
the Plan for the Property has been less than the fair rental value of
the Property as determined by Urban Real Estate.
7. The Applicant further represents that a second real estate
appraiser, Muriello Appraisal and Consulting (Muriello Appraisal) of
Elk Grove Village, Illinois, was retained by the Plan for the purpose
of determining the fair market value of the Property in connection with
the sale. The Applicant represents that Muriello Appraisal is
independent of, and unrelated to, the Company, the Applicant, and the
intended co partners. Muriello Appraisal represents that less than 1%
of its gross annual revenue was derived from appraisal services
performed for the Plan and the Company.
On June 18, 2007, an updated appraisal report was issued by
Muriello Appraisal concerning the fair market value of the Property as
of June 11, 2007. The updated report was signed by Frank J. Muriello,
MAI (a general real estate appraiser licensed by the State of Illinois)
and Paul J. Muriello, a senior appraiser also licensed by the State of
Illinois. In this updated report, Muriello Appraisal states that
consideration was given in the appraisal to three approaches to value:
The cost approach, the sales comparison approach, and the income
capitalization approach. Relying upon the sales comparison approach,
Muriello Appraisal issued a report dated June 18, 2007 which stated
that the fair market value of the Property was $975,000 as of June 11,
2007. The
[[Page 26418]]
Applicant later determined, however, that the appraisal report
improperly aggregated the values of both the Property and the Adjacent
Parcel in arriving at the $975,000 figure. The Applicant represents
that Paul Muriello has subsequently acknowledged in writing that, if
the Adjacent Parcel were disaggregated from the June, 2007, appraisal,
the standalone value of the Property may have to be adjusted below
$975,000. Nevertheless, the Applicant represents that the proposed
partnership is willing to pay the Plan the greater of $975,000 or the
fair market value of the Property on the date of the transaction.
8. Accordingly, the Applicant proposes a one-time cash sale of the
Property by the Plan to the proposed partnership for the greater of (1)
$975,000 or (2) the fair market value of the Property on the date of
the transaction as established by a qualified, independent appraiser.
The Applicant represents that no Plan assets or monies allocated to
individual participant accounts in the Plan will be utilized to
purchase the Property. The Applicant further states that the proposed
partnership intends to obtain financing from a financial institution to
enable the sale of the Property in exchange for cash; the financial
institution selected for this purpose shall be independent of and
unrelated to the Company, the Applicant, and the intended copartners.
Any mortgage obtained by the proposed partnership in connection with
the acquisition of the Property shall be a nonrecourse loan with no
obligations or liability to the Plan. The Applicant represents that the
sale of the Property by the Plan is administratively feasible in that
it will be a one-time transaction for cash. The Applicant also
represents that the sale is in the interests of the Plan because it
would provide additional liquidity to the Plan. In addition, the
Applicant represents that the sale is protective of the interests of
the Plan because the cash proceeds derived from the sale of the
Property will be invested in a manner that diversifies the assets of
the Plan.
9. In summary, the proposed transaction satisfies the requirements
of section 408(a) of the Act because: (a) The sale is a one-time
transaction for cash; (b) As a result of the sale, the Plan receives
the greater of (i) $975,000, (ii) the fair market value of the Property
as of the date of the transaction as determined by a qualified,
independent appraiser, or (iii) the cost to the Plan to acquire and
hold the Property; (c) The Plan pays no commissions, fees or other
expenses in connection with the sale; (d) The terms and conditions of
the sale are at least as favorable as those obtainable in an arm's
length transaction with an unrelated third party; (e) With respect to
any lease payments for the occupancy of the Property that were made by
the Company to the Plan on or after July 1, 1996 and which (in the
opinion of an MAI-certified, qualified independent appraiser) amounted
to less than the fair market rental value of the Property at the time
of such payment, the Company reimburses the Plan, prior to publication
of a final grant of this requested prohibited transaction exemption,
for the full amount of all such rental shortfalls in the form of a lump
sum payment in arrears plus interest as calculated in conformity with
the requirements of section 5(b)(5) of the Department's Voluntary
Fiduciary Correction (VFC) Program described at 71 FR 20262 (April 19,
2006); and (f) To the extent that there are rental shortfalls
referenced in paragraph (e), the Applicant shall provide the Department
with all relevant documentation pertaining to the calculation of such
shortfall (including the fair market rental value of the Property for
each applicable lease year, the amount of the rental shortfall for each
year, the interest attributable to the rental shortfall for each year,
and proof that the reimbursement was paid to the Plan) prior to
publication of a final grant of this prohibited transaction exemption.
Notice to Interested Persons: A copy of this notice of the proposed
exemption (the Notice) shall be given to all interested persons in the
manner agreed upon by the applicant and the Department within fifteen
(15) days of the date of its publication in the Federal Register. The
Department must receive all written comments and requests for a hearing
no later than forty-five (45) days after publication of the Notice in
the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department,
telephone (202) 693-8339. (This is not a toll-free number.)
Merrill Lynch & Co., Inc. (ML&Co.) and BlackRock, Inc. (BlackRock);
(Collectively, the Applicants), Located in New York, New York
[Exemption Application No. D-11435].
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) 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):
1. Definitions
(a) For purposes of this proposed exemption, the term ``Merrill
Lynch/BlackRock Related Entity or Entities'' includes all entities
listed in Section I(a)(1), (a)(2) and (a)(3):
(1) Merrill Lynch & Co. (i.e., ML&Co.) and any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with ML&Co.,
(2) BlackRock, Inc. (i.e., BlackRock) and any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with BlackRock, and
(3) Any entity that meets the definition of a Merrill Lynch/
BlackRock Related Entity during the term of the exemption.
(b) For purposes of section (a), the term ``control'' means the
power to exercise a controlling influence over the management or
policies of a person other than an individual.
2. General Conditions
(a) The applicable Merrill Lynch/BlackRock Related Entity or
Entities maintain(s) or cause(s) to be maintained for a period of six
(6) years from the date of any transaction described herein, such
records as are necessary to enable the persons described in paragraph
(b) to determine whether the conditions of this exemption were met,
except that--
(1) If the records necessary to enable the persons described in
paragraph (b)(1)(i)-(iv) to determine whether the conditions of the
exemption have been met are lost or destroyed, due to circumstances
beyond the control of the Merrill Lynch/BlackRock Related Entity or
Entities, then no prohibited transaction will be considered to have
occurred solely on the basis of the unavailability of those records;
and
(2) No party in interest with respect to a plan which engages in
the covered transactions, other than any Merrill Lynch/BlackRock
Related Entity or Entities, shall be subject to the civil penalty that
may be assessed under section 502(i) of the Act or to the taxes imposed
by section 4975(a) and (b) of the Code if the records have not been
maintained or are not available for examination as required by
paragraph (b) below.
(b)(1) Except as provided below in paragraph (b)(2), and
notwithstanding the provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to above in paragraph (a) above
are unconditionally available for
[[Page 26419]]
examination during normal business hours at their customary location to
the following persons or an authorized representative thereof--
(i) Any duly authorized employee or representative of the
Department or 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 transactions covered herein, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a plan that engages in the
transactions covered herein, or duly authorized representative of such
participant or beneficiary;
(2) None of the persons described above in paragraph (b)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the Merrill Lynch/
BlackRock Related Entity or Entities, or commercial or financial
information, which is privileged or confidential; and
(3) Should the Merrill Lynch/BlackRock Related Entity or Entities
refuse to disclose information on the basis that such information is
exempt from disclosure, pursuant to paragraph (b)(2) above, the Merrill
Lynch/BlackRock Related Entity or Entities shall, by 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.
3. Exemptions From Prohibitions Respecting Certain Classes of
Transactions Involving Employee Benefit Plans and Certain Broker-
Dealers and Banks--Underwritings
The restrictions of sections 406 of the Act, and the taxes imposed
by reason of section 4975(a) and (b) of the Code, by reason of section
4975(c)(1) of the Code, shall not apply to the purchase or other
acquisition of certain securities by an employee benefit plan during
the existence of an underwriting or selling syndicate with respect to
such securities, from any person other than a Merrill Lynch/BlackRock
Related Entity or Entities, when such Merrill Lynch/BlackRock Related
Entity or Entities is a fiduciary with respect to such plan, and a
member of such syndicate, provided that the following conditions are
met:
(a) No Merrill Lynch/BlackRock Related Entity or Entities which is
involved in any way in causing the plan to make the purchase is a
manager of such underwriting or selling syndicate. For purposes of this
exemption, 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 being offered or who receives compensation from the members
of the syndicate for its services as a manager of the syndicate.
(b) The securities to be purchased or otherwise acquired are--
(1) Part of an issue registered under the Securities Act of 1933
or, if exempt from such registration requirement, are (i) 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,
(ii) issued by a bank, (iii) issued by a common or contract carrier, if
such issuance is subject to the provisions of section 20a of the
Interstate Commerce Act, as amended, (iv) exempt from such registration
requirement pursuant to a Federal statute other than the Securities Act
of 1933, or (v) 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 (15 U.S.C. 781), and the issuer of which has been
subject to the reporting requirements of section 13 of the Act (15
U.S.C. 78m) for a period of at least 90 days immediately preceding the
sale of securities and has filed all reports required to be filed
thereunder with the Securities and Exchange Commission during the
preceding 12 months.
(2) Purchased at not more than the public offering price prior to
the end of the first full business day after the final term of the
securities have been fixed and announced to the public, except that--
(i) if such securities are offered for subscription upon exercise
of rights, they are 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 public offering price on a day subsequent to the end of such first
full business day, provided that the interest rates on comparable debt
securities offered to the public subsequent to such first full business
day and prior to the purchase are less than the interest rate of the
debt securities being purchased.
(3) Offered pursuant to an underwriting 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.
(c) The issuer of such securities has been in continuous operation
for not less than three years, including the operations of any
predecessors, unless--
(1) Such securities are non-convertible debt securities rated in
one of the four highest rating categories by at least one of the
following rating organizations: Standard & Poor's Rating Services,
Moody's Investors Service, Inc., Fitch Ratings Inc., Dominion Bond
Ratings Service Limited, and Dominion Bond Rating Service, Inc., or any
successors thereto;
(2) Such securities are issued or fully guaranteed by a person
described in paragraph (b)(1)(i) of this exemption; or
(3) Such securities are issued or fully guaranteed by a person who
has issued securities described in paragraph (b)(1)(ii), (iii), (iv) or
(v), and this paragraph (c) of this exemption.
(d) The amount of such securities to be purchased or otherwise
acquired by the plan does not exceed 3% of the total amount of such
securities being offered.
(e) The consideration to be paid by the plan in purchasing or
otherwise acquiring such securities does not exceed three percent of
the fair market value of the total assets of the plan as of the last
day of the most recent fiscal quarter of the plan prior to such
transaction, provided that if such consideration exceeds $1 million, it
does not exceed 1% of such fair market value of the total assets of the
plan.
If such securities are purchased by the plan from a party in
interest or disqualified person with respect to the plan, such party in
interest or disqualified person shall not be subject to the civil
penalty which may be assessed under section 502(i) of the Act, or to
the taxes imposed by section 4975(a) and (b) of the Code, if the
conditions of this exemption are not met. However, if such securities
are purchased from a party in interest or disqualified person with
respect to the plan, the restrictions of section 406(a) of the Act
shall apply to any fiduciary with respect to the plan and the taxes
imposed by section 4975(a) and (b) of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall apply to such party in
interest or disqualified person, unless the conditions for exemption of
PTE 75-1 (40 FR 50845, October 31, 1975), Part II (relating to certain
principal transactions) are met.
[[Page 26420]]
4. Exemptions From Prohibitions Respecting Certain Classes of
Transactions Involving Employee Benefit Plans and Certain Broker-
Dealers, Reporting Broker-Dealers and Banks--Market-Making
The restrictions of sections 406 of the Act, and the taxes imposed
by section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)
of the Code, shall not apply to any purchase or sale of any securities
by an employee benefit plan from or to a Merrill Lynch/BlackRock
Related Entity or Entities which is a market-maker with respect to such
securities, when a Merrill Lynch/BlackRock Related Entity or Entities
is also a fiduciary with respect to such plan, provided that the
following conditions are met:
(a) The issuer of such securities has been in continuous operation
for not less than three years, including the operations of any
predecessors, unless--
(1) Such securities are non-convertible debt securities rated in
one of the four highest rating categories by at least one of the
following rating organizations: Standard & Poor's Rating Services,
Moody's Investors Service, Inc., Fitch Ratings Inc., Dominion Bond
Ratings Service Limited, and Dominion Bond Rating Service, Inc., or any
successors thereto;
(2) Such securities 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; or
(3) Such securities are fully guaranteed by a person described in
this paragraph (a).
(b) As a result of purchasing such securities--
(1) The fair market value of the aggregate amount of such
securities owned, directly or indirectly, by the plan and with respect
to which such Merrill Lynch/BlackRock Related Entity or Entities is a
fiduciary, does not exceed 3% of the fair market value of the assets of
the plan with respect to which such Merrill Lynch/BlackRock Related
Entity or Entities is a fiduciary, as of the last day of the most
recent fiscal quarter of the plan prior to such transaction, provided
that if the fair market value of such securities exceeds $1 million, it
does not exceed one percent of such fair market value of such assets of
the plan, except that this paragraph shall not apply to securities
described in (a)(2) of this exemption; and
(2) The fair market value of the aggregate amount of all securities
for which such Merrill Lynch/BlackRock Related Entity or Entities is a
market-maker, which are owned, directly or indirectly, by the plan and
with respect to which such Merrill Lynch/BlackRock Related Entity or
Entities is a fiduciary, does not exceed 10% of the fair market value
of the assets of the plan with respect to which such Merrill Lynch/
BlackRock Related Entity or Entities is a fiduciary, as of the last day
of the most recent fiscal quarter of the plan prior to such
transaction, except that this paragraph shall not apply to securities
described in paragraph (a)(2) of this exemption.
(c) At least one person other than a Merrill Lynch/BlackRock
Related Entity or Entities is a market-maker with respect to such
securities.
(d) The transaction is executed at a net price to the plan for the
number of shares or other units to be purchased or sold in the
transaction which is more favorable to the plan than that which such
Merrill Lynch/BlackRock Related Entity or Entities acting as fiduciary
and acting in good faith, reasonably believes to be available at the
time of such transaction from all other market-makers with respect to
such securities.
For purposes of this exemption, the term ``market-maker'' shall
mean any specialist permitted to act as a dealer, and any dealer who,
with respect to a security, holds himself out (by entering quotations
in an inter-dealer communications system or otherwise) as being willing
to buy and sell such security for his own account on a regular or
continuous basis.
5. Exemption Involving Mutual Fund In-House Plans
The restrictions of sections 406 and 407(a) of the Act and the
taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1) of the Code, shall not apply to the acquisition or
sale of shares of an open-end investment company registered under the
Investment Company Act of 1940 by an employee benefit plan covering
only employees of such investment company, employees of the investment
adviser or principal underwriter for such investment company, or
employees of any affiliated person (as defined in section 2(a)(3) of
the Investment Company Act of 1940) of such investment adviser or
principal underwriter, provided that the investment adviser or
principal underwriter or their affiliates are a Merrill Lynch/BlackRock
Related Entity or Entities, and the following conditions are met
(whether or not such investment company, investment adviser, principal
underwriter or any affiliated person thereof is a fiduciary with
respect to the plan):
(a) The plan does not pay any investment management, investment
advisory or similar fee to such investment adviser, principal
underwriter or affiliated person. This condition does not preclude the
payment of investment advisory fees by the investment company under the
terms of its investment advisory agreement adopted in accordance with
section 15 of the Investment Company Act of 1940.
(b) The plan does not pay a redemption fee in connection with the
sale by the plan to the investment company of such shares unless (1)
such redemption fee is paid only to the investment company, and (2) the
existence of such redemption fee is disclosed in the investment company
prospectus in effect both at the time of the acquisition of such shares
and at the time of such sale.
(c) The plan does not pay a sales commission in connection with
such acquisition or sale.
(d) All other dealings between the plan and the investment company,
the investment adviser or principal underwriter for the investment
company, or any affiliated person of such investment adviser or
principal underwriter are on a basis no less favorable to the plan than
such dealings are with other shareholders of the investment company.
6. Exemption for Certain Transactions Between Investment Companies and
Employee Benefit Plans
The restrictions of section 406 of the Act and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1) of
the Code, shall not apply to the purchase or sale by an employee
benefit plan of shares of an open-end investment company registered
under the Investment Company Act of 1940, where the investment adviser
of the investment company is a Merrill Lynch/BlackRock Related Entity
or Entities, who is also a fiduciary with respect to the plan but not
an employer of employees covered by the plan, provided that the
following conditions are met:
(a) The plan does not pay a sales commission in connection with
such purchase or sale.
(b) The plan does not pay a redemption fee in connection with the
sale by the plan to the investment company of such shares unless (1)
such redemption fee is paid only to the investment company, and (2) the
existence of such redemption fee is disclosed in the investment company
[[Page 26421]]
prospectus in effect both at the time of the purchase of such shares
and at the time of such sale.
(c) The plan does not pay an investment management, investment
advisory or similar fee with respect to the plan assets invested in
such shares for the entire period of such investment. This condition
does not preclude the payment of investment advisory fees by the
investment company under the terms of its investment advisory agreement
adopted in accordance with section 15 of the Investment Company Act of
1940. This condition also does not preclude payment of an investment
advisory fee by the plan based on total plan assets from which a credit
has been subtracted representing the plan's pro rata share of
investment advisory fees paid by the investment company. If, during any
fee period for which the plan has prepaid its investment management,
investment advisory or similar fee, the plan purchases shares of the
investment company, the requirement of this paragraph (c) shall be
deemed met with respect to such prepaid fee if by a method reasonably
designed to accomplish the same, the amount of the prepaid fee that
constitutes the fee with respect to the plan assets invested in the
investment company shares (1) is anticipated and subtracted from the
prepaid fee at the time of payment of such fee, (2) is returned to the
plan no later than during the immediately following fee period, or (3)
is offset against the prepaid fee for the immediately following fee
period or for the fee period immediately following thereafter. For
purposes of this paragraph (c), a fee shall be deemed to be prepaid for
any fee period if the amount of such fee is calculated as of a date not
later than the first day of such period.
(d) A second fiduciary with respect to the plan, who is independent
of and unrelated to the fiduciary/investment adviser or any affiliate
thereof, receives a current prospectus issued by the investment
company, and full and detailed written disclosure of the investment
advisory and other fees charged to or paid by the plan and the
investment company, including the nature and extent of any differential
between the rates of such fees, the reasons why the fiduciary/
investment adviser may consider such purchases to be appropriate for
the plan, and whether there are any limitations on the fiduciary/
investment adviser with respect to which plan assets may be invested in
shares of the investment company and, if so, the nature of such
limitations. For purposes of this paragraph (d), such second fiduciary
will not be deemed to be independent of and unrelated to the fiduciary/
investment adviser or any affiliate thereof if:
(1) Such second fiduciary directly or indirectly controls, is
controlled by, or is under common with the fiduciary/investment adviser
or any affiliate thereof;
(2) Such second fiduciary, or any officer, director, partner,
employee or relative of such second fiduciary is an officer, director,
partner, employee or relative of such fiduciary/investment adviser or
any affiliate thereof; or
(3) Such second fiduciary directly or indirectly receives any
compensation or other consideration for his or her own personal account
in connection with any transaction described in this exemption.
If an officer, director, partner, employee or relative of such
fiduciary/investment adviser or any affiliate thereof is a director of
such second fiduciary, and if he or she abstains from participation in
(i) the choice of the plan's investment adviser, (ii) the approval of
any such purchase or sale between the plan and the investment company,
and (iii) the approval of any change of fees charged to or paid by the
plan, then paragraph (d) of this exemption shall not apply.
For purposes of paragraph (d)(1) above, the term ``control'' means
the power to exercise a controlling influence over the management or
policies of a person other than an individual, and the term
``relative'' means a ``relative'' as that term is defined in section
3(15) of the Act (or a ``member of the family'' as that term is defined
in section 4975(e)(6) of the Code), or a brother, a sister, or a spouse
of a brother or a sister.
(e) On the basis of the prospectus and disclosure referred to in
paragraph (d), the second fiduciary referred to in paragraph (d)
approves such purchases and sales consistent with the responsibilities
obligations, and duties imposed on fiduciaries by Part 4 of Title I of
the Act. Such approval may be limited solely to the investment advisory
and other fees paid by the mutual fund in relation to the fees paid by
the plan and need not relate to any other aspects of such investments.
In addition, such approval must be either (1) set forth in the plan
documents or in the investment management agreement between the plan
and the fiduciary/investment adviser, (2) indicated in writing prior to
each purchase or sale, or (3) indicated in writing prior to the
commencement of a specified purchase or sale program in the shares of
such investment company.
(f) The second fiduciary referred to in paragraph (d), above, or
any successor thereto, is notified of any change in any of the rates of
fees referred to in paragraph (d) and approves in writing the
continuation of such purchases or sales and the continued holding of
any investment company shares acquired by the plan prior to such change
and still held by the plan. Such approval may be limited solely to the
investment advisory and other fees paid by the mutual fund in relation
to the fees paid by the plan and need not relate to any other aspects
of such investment.
7. Exemption Involving Closed-End Investment Company In-House Plans
The restrictions of sections 406 and 407(a) of the Act, and the
taxes imposed by section 4975 (a) and (b) of the Code, by reason of
section 4975(c)(1) of the Code, shall not apply to the acquisition,
ownership or sale of shares of a closed-end investment company which is
registered under the Investment Company Act of 1940 and is not a small
business investment company as defined by section 103 of the Small
Business Investment Company Act of 1958, by an employee benefit plan
covering only employees of such investment company, employees of the
investment adviser of such investment company, or employees of any
affiliated person (as defined in section 2(a)(3) of the Investment
Company Act of 1940) of such investment company or investment adviser,
provided that such entity or entities are a Merrill Lynch/BlackRock
Related Entity or Entities, and the following conditions are met
(whether or not such investment company, investment adviser or any
affiliated person thereof is a fiduciary with respect to the plan):
(a) The plan does not pay any investment management, investment
advisory, or similar fee to such investment adviser or affiliated
person. This condition does not preclude the payment of investment
advisory fees by the investment company under the terms of its
investment advisory agreement adopted in accordance with section 15 of
the Investment Company Act of 1940.
(b) The plan does not pay a sales commission in connection with
such acquisition or sale to any such investment company or to any such
investment company, investment adviser or affiliated person; and
(c) All other dealings between the plan and such investment
company, the investment adviser, or affiliated person, are on a basis
no less favorable to the plan than such dealings are with other
[[Page 26422]]
shareholders of the investment company.
8. Exemption for Securities Transactions Involving Employee Benefit
Plans and Broker-Dealers
Section I: Definition and Special Rules
The following definitions and special rules apply to this
exemption:
(a) The term ``Merrill Lynch/BlackRock Related Entity or Entities''
includes affiliates of such entity or entities.
(b) An ``affiliate'' of a Merrill Lynch/BlackRock Related Entity or
Entities includes the following:
(1) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), brother, sister, or spouse of a brother
or sister, of the Merrill Lynch/BlackRock Related Entity or Entities;
and
(2) any corporation or partnership of which the Merrill Lynch/
BlackRock Related Entity or Entities is an officer, director or
partner.
A person is not an affiliate of another person solely because one
of them has investment discretion over the other's assets.
(c) An ``agency cross transaction'' is a securities transaction in
which the same Merrill Lynch/BlackRock Related Entity or Entities
act(s) as agent for both any seller and any buyer for the purchase or
sale of a security.
(d) The term ``covered transaction'' means an action described in
Section II (a), (b) or (c) of this exemption.
(e) The term ``effecting or executing a securities transaction''
means the execution of a securities transaction as agent for another
person and/or the performance of clearance, settlement, custodial or
other functions ancillary thereto.
(f) A plan fiduciary is independent of a Merrill Lynch/BlackRock
Related Entity or Entities only if the fiduciary has no relationship to
or interest in such Merrill Lynch/BlackRock Related Entity or Entities
that might affect the exercise of such fiduciary's best judgment as a
fiduciary.
(g) The term ``profit'' includes all charges relating to effecting
or executing securities transactions, less reasonable and necessary
expenses including reasonable indirect expenses (such as overheard
costs) properly allocated to the performance of these transactions
under generally accepted accounting principles.
(h) The term ``securities transaction'' means the purchase or sale
of securities.
(i) The term ``nondiscretionary trustee'' of a plan means a trustee
or custodian whose powers and duties with respect to any assets of the
plan are limited to (1) the provision of nondiscretionary trust
services to the plan, and (2) duties imposed on the trustee by any
provision or provisions of the Act or the Code. The term
``nondiscretionary trust services and services'' means custodial
services and services ancillary to custodial services, none of which
services are discretionary. For purposes of this exemption, a person
does not fail to be a nondiscretionary trustee solely by reason of
having been delegated, by the sponsor of a master or prototype plan,
the power to amend such plan.
Section II: Covered Transactions
If each condition of Section III of this exemption is either
satisfied or not applicable under Section IV of this exemption, the
restrictions of section 406(b) of the Act and the taxes imposed by
section 4975(a) and (b) of the Code by reason of section 4975(c)(1)(E)
and (F) of the Code shall not apply to--
(a) A Merrill Lynch/BlackRock Related Entity or Entities that is a
plan fiduciary using its authority to cause a plan to pay a fee to a
Merrill Lynch/BlackRock Related Entity or Entities as agent for the
plan, for effecting or executing securities transactions, but only to
the extent that such transactions are not excessive, under the
circumstances, in either amount or frequency;
(b) A Merrill Lynch/BlackRock Related Entity or Entities that is a
plan fiduciary acting as the agent in an agency cross transaction for
both the plan and one or more other parties to the transaction; or
(c) The receipt by any Merrill Lynch/BlackRock Related Entity or
Entities that is a plan fiduciary of reasonable compensation for
effecting or executing an agency cross transaction to which a plan is a
party from one or more other parties to the transaction.
Section III: Conditions
Except to the extent otherwise provided in Section IV of this
exemption, Section II of this exemption applies only if the following
conditions are satisfied:
(a) The Merrill Lynch/BlackRock Related Entity engaging in the
covered transaction is not an administrator of the plan, or an employer
any of whose employees are covered by the plan.
(b)(1) The covered transaction is performed under a written
authorization executed in advance by a fiduciary of each plan whose
assets are involved in the transaction, which plan fiduciary is
independent of the Merrill Lynch/BlackRock Related Entity or Entities
engaging in the covered transaction.
(2) For purposes of this exemption, Section III(b) will be deemed
satisfied for the period commencing September 29, 2006, notwithstanding
Merrill Lynch Investment Managers, LLC (MLIM)'s reliance on written
authorizations obtained prior to the consummation of the Merger \3\,
provided that after the closing of the Merger, MLIM notified each such
authorizing plan fiduciary of the fact that: (A) As a result of the
Merger, MLIM had become a subsidiary of BlackRock; (B) the existing
authorization by such authorizing plan fiduciary would continue to
permit MLIM to engage in the covered transaction on behalf of the plan;
(C) such authorization is terminable at will by the plan, without
penalty to the plan, upon receipt by MLIM of written notice from an
authorizing plan fiduciary of termination; (D) a form expressly
providing an election to terminate the authorization with instructions
on the use of such form was supplied to each such authorizing plan
fiduciary; and (E) failure to return such termination form would result
in the continued authorization of MLIM to engage in the covered
transactions on behalf of the plan. Notwithstanding the foregoing, this
exception does not apply to new authorizations to engage in covered
transactions entered into after the consummation of the Merger.
---------------------------------------------------------------------------
\3\ On September 29, 2006, ML&Co. and BlackRock consummated a
transaction (the Merger), in which ML&Co. contributed MLIM and
various other assets and subsidiaries that comprised its investment
management business to BlackRock in exchange for approximately 45%
of the outstanding voting securities of BlackRock.
---------------------------------------------------------------------------
(c) The authorization referred to in paragraph (b) of this Section
is terminable at will by the plan, without penalty to the plan, upon
receipt by the authorized Merrill Lynch/BlackRock Related Entity or
Entities of written notice of termination. A form expressly providing
an election to terminate the authorization described in paragraph (b)
of this Section with instructions on the use of the form must be
supplied to the authorizing plan fiduciary no less than annually. The
instructions for such form must include the following information:
(1) The authorization is terminable at will by the plan, without
penalty to the plan, upon receipt by the authorized Merrill Lynch/
BlackRock Related Entity or Entities of written notice from the
authorizing plan fiduciary or other plan official having authority to
terminate the authorization; and
(2) Failure to return the form will result in the continued
authorization of the authorized Merrill Lynch/BlackRock
[[Page 26423]]
Related Entity or Entities to engage in the covered transactions on
behalf of the plan.
(d) Within three months before an authorization is made, the
authorizing plan fiduciary is furnished with any reasonably available
information that the Merrill Lynch/BlackRock Related Entity or Entities
seeking authorization reasonably believes to be necessary for the
authorizing plan fiduciary to determine whether the authorization
should be made including (but not limited to) a copy of this exemption,
the form for termination of authorization described in Section III(c)
of this exemption, a description of the Merrill Lynch/BlackRock Related
Entity or Entities' brokerage placement practices, and any other
reasonably available information regarding the matter that the
authorizing plan fiduciary requests.
(e) The Merrill Lynch/BlackRock Related Entity or Entities engaging
in a covered transaction furnishes the authorizing plan fiduciary with
either:
(1) A confirmation slip for each securities transaction underlying
a covered transaction within ten business days of the securities
transaction containing the information described in Rule 10b-10(a)(1-7)
under the Securities Exchange Act of 1934, 17 CFR 240.10b-10; or
(2) at least once every three months and not later than 45 days
following the period to which it relates, a report disclosing:
(A) A compilation of the information that would be provided to the
plan pursuant to subparagraph (e)(1) of this Section during the three-
month period covered by the report;
(B) The total of all securities transaction-related charges
incurred by the plan during such period in connection with such covered
transactions; and
(C) The amount of the securities transaction-related charges
retained by such Merrill Lynch/BlackRock Related Entity or Entities and
the amount of such charges paid to other persons for execution or other
services.
For purposes of this paragraph (e), the words ``incurred by the
plan'' shall be construed to mean ``incurred by the pooled fund'' when
such Merrill Lynch/BlackRock Related Entity or Entities engages in
covered transactions on behalf of a pooled fund in which the plan
participates.
(f) The authorizing plan fiduciary is furnished with a summary of
the information required under paragraph (e)(1) of this Section at
least once per year. The summary must be furnished within 45 days after
the end of the period to which it relates, and must contain the
following:
(1) The total of all securities transaction-related charges
incurred by the plan during the period in connection with covered
securities transactions.
(2) The amount of the securities transaction-related charges
retained by the authorized Merrill Lynch/BlackRock Related Entity or
Entities and the amount of these charges paid to other persons for
execution or other services.
(3) A description of the Merrill Lynch/BlackRock Related Entity or
Entities' brokerage placement practices, if such practices have
materially changed during the period covered by the summary.
(4) (i) A portfolio turnover ratio is calculated in a manner which
is reasonably designed to provide the authorizing plan fiduciary with
the information needed to assist in discharging its duty of prudence.
The requirements of this paragraph (f)(4)(i) will be met if the
``annualized portfolio turnover ratio'', calculated in the manner
described in paragraph (f)(4)(ii), is contained in the summary.
(ii) The ``annualized portfolio turnover ratio'' shall be
calculated as a percentage of the plan assets consisting of securities
or cash over which the authorized Merrill Lynch/BlackRock Related
Entity or Entities had discretionary investment authority, or with
respect to which such Merrill Lynch/BlackRock Related Entity or
Entities rendered, or had any responsibility to render, investment
advice (the portfolio) at any time or times (management period(s))
during the period covered by the report. First, the ``portfolio
turnover ratio'' (not annualized) is obtained by dividing (A) the
lesser of the aggregate dollar amounts of purchases or sales of
portfolio securities during the management period(s) by (B) the monthly
average of the market value of the portfolio securities during all
management period(s). Such monthly average is calculated by totaling
the market values of the portfolio securities as of the beginning and
ending of each management period and as of the end of each month that
ends within such period(s), and dividing the sum by the number of
valuation dates so used. For purposes of this calculation, all debt
securities whose maturities at the time of acquisition were one year or
less are excluded from both the numerator and the denominator.
The ``annualized portfolio turnover ratio'' is then derived by
multiplying the ``portfolio turnover ratio'' by an annualizing factor.
The annualizing factor is obtained by dividing (C) the number twelve by
(D) the aggregate duration of the management period(s) expressed in
months (and fractions thereof).
(iii) The information described in this paragraph (f)(4) is not
required to be furnished in any case where the authorized Merrill
Lynch/BlackRock Related Entity or Entities acting as plan fiduciary has
not exercised discretionary authority over trading in the plan's
account during the period covered by the report.
For purposes of this paragraph (f), the words ``incurred by the
plan'' shall be construed to mean ``incurred by the pooled fund'' when
such Merrill Lynch/BlackRock Related Entity or Entities engages in
covered transactions on behalf of a pooled fund in which the plan
participates.
(g) If an agency cross transaction to which Section IV(b) of this
exemption does not apply is involved, the following conditions must
also be satisfied:
(1) The information required under Section III(d) or IV(d)(1)(B) of
this exemption includes a statement to the effect that with respect to
agency cross transactions, the Merrill Lynch/BlackRock Related Entity
or Entities effecting or executing the transactions will have a
potentially conflicting division of loyalties and responsibilities
regarding the parties to the transactions;
(2) The summary required under Section III(f) of this exemption
includes a statement identifying the total number of agency cross
transactions during the period covered by the summary and the total
amount of all commissions or other remuneration received or to be
received from all sources by the Merrill Lynch/BlackRock Related Entity
or Entities engaging in the transactions in connection with those
transaction during the period;
(3) The Merrill Lynch/BlackRock Related Entity or Entities
effecting or executing the agency cross transaction has the
discretionary authority to act on behalf of, and/or provide investment
advice to, either (A) one or more sellers or (B) one or more buyers
with respect to the transaction, but not both.
(4) The agency cross transaction is a purchase or sale, for no
consideration other than cash payment against prompt delivery of a
security for which market quotations are readily available; and
(5) The agency cross transaction is executed or effected at a price
that is at or between the independent bid and independent ask prices
for the security prevailing at the time of the transaction.
(h) A trustee (other than a nondiscretionary trustee) may only
[[Page 26424]]
engage in a covered transaction with a plan that has total net assets
with a value of at least $50 million and in the case of a pooled fund,
the $50 million net asset requirement will be met if 50 percent or more
of the units of beneficial interest in such pooled fund are held by
plans each of which has total net assets with a value of at least $50
million.
For purposes of the net asset tests described above, where a group
of 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 may be met by aggregating the assets of such
plans, if the assets are pooled for investment purposes in a single
master trust.
(i) The trustee (other than a nondiscretionary trustee) engaging in
a covered transaction furnishes, at least annually, to the authorizing
plan fiduciary of each plan the following:
(1) The aggregate brokerage commissions, expressed in dollars, paid
by the plan to brokerage firms affiliated with the trustee;
(2) The aggregate brokerage commissions, expressed in dollars, paid
by the plan to brokerage firms unaffiliated with the trustee;
(3) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms affiliated with the trustee;
and
(4) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms unaffiliated with the
trustee.
For purposes of this paragraph (i), the words ``paid by the plan''
should be construed to mean ``paid by the pooled fund'' when the
trustee engages in covered transactions on behalf of a pooled fund in
which the plan participates.
Section IV: Exceptions From Conditions
(a) Certain plans not covering employees. Section III of this
exemption does not apply to covered transactions to the extent they are
engaged in on behalf of individual retirement accounts meeting the
conditions of 29 CFR 2510.3-2(d), or plans, other than training
programs, that cover no employees within the meaning of 29 CFR 2510.3-
3.
(b) Certain agency cross transactions. Section III of this
exemption does not apply in the case of an agency cross transaction,
provided that the Merrill Lynch/BlackRock Related Entity or Entities
effecting or executing the transaction:
(1) Does not render investment advice to any plan for a fee within
the meaning of section 3(21)(A)(ii) of the Act with respect to the
transaction;
(2) Is not otherwise a fiduciary who has investment discretion with
respect to any plan assets involved in the transaction, see 29 CFR
2510.3-21(d); and
(3) Does not have the authority to engage, retain or discharge any
person who is or is proposed to be a fiduciary regarding any such plan
assets.
(c) Recapture of profits. Section III(a) of this exemption does not
apply in any case where the Merrill Lynch/BlackRock Related Entity or
Entities engaging in a covered transaction returns or credits to the
plan all profits earned by that Merrill Lynch/BlackRock Related Entity
or Entities in connection with the securities transactions associated
with the covered transaction.
(d) Special rules for pooled funds. In the case of a Merrill Lynch/
BlackRock Related Entity or Entities engaging in a covered transaction
on behalf of an account or fund for the collective investment of the
assets of more than one plan (pooled fund):
(1) Section III (b), (c), and (d) of this exemption does not apply
if--
(A) The arrangement under which the covered transaction is
performed is subject to the prior and continuing authorization, in the
manner described in this paragraph (d)(1), of an authorizing plan
fiduciary with respect to each plan whose assets are invested in the
pooled fund that is independent of the Merrill Lynch/BlackRock Related
Entity or Entities. The requirement that the authorizing plan fiduciary
be independent of the Merrill Lynch/BlackRock Related Entity or
Entities shall not apply in the case of a plan covering only employees
of the Merrill Lynch/BlackRock Related Entity or Entities, if the
requirements of Section IV(d)(2)(A) and (B) of this exemption are met.
(B) The authorizing plan fiduciary is furnished with any reasonably
available information that the Merrill Lynch/BlackRock Related Entity
or Entities engaging or proposing to engage in the covered transactions
reasonably believes to be necessary for the authorizing plan fiduciary
to determine whether the authorization should be given or continued,
not less than 30 days prior to implementation of the arrangement or
material change thereto, including (but not limited to) a description
of the Merrill Lynch/BlackRock Related Entity or Entities' brokerage
placement practices, and, where requested, any reasonable available
information regarding the matter upon the reasonable request of the
authorizing plan fiduciary at any time.
(C) In the event an authorizing plan fiduciary submits a notice in
writing to the Merrill Lynch/BlackRock Related Entity or Entities
engaging in or proposing to engage in the covered transaction objecting
to the implementation of, material change in, or continuation of, the
arrangement, the plan on whose behalf the objection was tendered is
given the opportunity to terminate its investment in the pooled fund,
without penalty to the 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 nonwithdrawing plans. In the case of a
plan that elects to withdraw under this subparagraph (d)(1)(C), the
withdrawal shall be effected prior to the implementation of, or
material change in, the arrangement; but an existing arrangement need
not be discontinued by reason of a plan electing to withdraw.
(D) In the case of plans whose assets are proposed to be invested
in the pooled fund subsequent to the implementation of the arrangement
that has not authorized the arrangement in the manner described in
subparagraphs (d)(1)(B) and (C) of this Section, the plan's investment
in the pooled fund is subject to the prior written authorization of an
authorizing plan fiduciary who satisfies the requirements of
subparagraph (d)(1)(A).
(2) To the extent that Section III(a) of this exemption prohibits
any Merrill Lynch/BlackRock Related Entity or Entities from being the
employer of employees covered by a plan investing in a pool managed by
the Merrill Lynch/BlackRock Related Entity or Entities, Section III(a)
of this exemption does not apply if--
(A) The Merrill Lynch/BlackRock Related Entity or Entities is an
``investment manager'' as defined in section 3(38) of the Act, and
(B) Either (i) the Merrill Lynch/BlackRock Related Entity or
Entities returns or credits to the pooled fund all profits earned by
the Merrill Lynch/BlackRock Related Entity or Entities in connection
with all covered transactions engaged in by the Merrill Lynch/BlackRock
Related Entity or Entities on behalf of the fund, or (ii) the pooled
fund satisfies the requirements of paragraph IV(d)(3).
(3) A pooled fund satisfies the requirements of this paragraph for
a fiscal year of the fund if--
(A) On the first day of such fiscal year, and immediately following
each acquisition of an interest in the pooled fund during the fiscal
year by any plan covering employees of any Merrill
[[Page 26425]]
Lynch/BlackRock Related Entity or Entities, the aggregate fair market
value of the interests in such fund of all plans covering employees of
any Merrill Lynch/BlackRock Related Entity or Entities does not exceed
twenty percent of the fair market value of the total assets of the
fund; and
(B) The aggregate brokerage commissions received by any Merrill
Lynch/BlackRock Related Entity or Entities, in connection with covered
transactions engaged in by any Merrill Lynch/BlackRock Related Entity
or Entities on behalf of all pooled funds in which a plan covering
employees of any Merrill Lynch/BlackRock Related Entity or Entities
participates, do not exceed five percent of the total brokerage
commissions received by any Merrill Lynch/BlackRock Related Entity or
Entities from all sources in such fiscal year.
9. Exemption for Cross-Trades of Securities by Index and Model-Driven
Funds
Section I. Proposed Exemption for Cross-Trading of Securities by Index
and/or Model-Driven Funds
The restrictions of sections 406(a)(1)(A) and 406(b)(2) of the Act,
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) of the Code, shall not apply
to the transactions described below if the applicable conditions set
forth in Sections II and III of this exemption, below, are satisfied.
(a) The purchase and sale of securities between an Index Fund or a
Model-Driven Fund (either, a Fund; or collectively, the Funds), as
defined in Section IV(a) and (b) of this exemption, below, and another
Fund, at least one of which holds ``plan assets'' subject to the Act;
or
(b) The purchase and sale of securities between a Fund and a Large
Account, as defined in Section IV(e) of this exemption, below, at least
one of which holds ``plan assets'' subject to the Act, pursuant to a
portfolio restructuring program, as defined in Section IV(f) of this
exemption, below, of the Large Account;
Notwithstanding the foregoing, this exemption shall apply to cross-
trades between two or more Large Accounts pursuant to a portfolio
restructuring program if such cross-trades occur as part of a single
cross-trading program involving both Funds and Large Accounts for which
securities are cross-traded solely as a result of the objective
operation of the program.
Section II. Specific Conditions
(a) The cross-trade is executed at the closing price, as defined in
Section IV(h) of this exemption below.
(b) Any cross-trade of securities by a Fund occurs as a direct
result of a ``triggering event,'' as defined in Section IV(d) of this
exemption, and is executed no later than the close of the third
business day following such ``triggering event.''
(c) If the cross-trade involves a Model-Driven Fund, the cross-
trade does not take place within three (3) business days following any
change made by the Manager to the model underlying the Fund.
(d) The Manager has allocated the opportunity for all Funds or
Large Accounts to engage in the cross-trade on an objective basis which
has been previously disclosed to the authorizing fiduciaries of plan
investors, and which does not permit the exercise of discretion by the
Manager (e.g., a pro rata allocation system).
(e) No more than twenty (20) percent of the assets of the Fund or
Large Account at the time of the cross-trade is comprised of assets of
employee benefit plans maintained by the Manager for its own employees
(Manager Plans) for which the Manager exercises investment discretion.
(f)(1) Cross-trades of equity securities involve only securities
that are widely-held, actively-traded, and for which market quotations
are readily available from independent sources that are engaged in the
ordinary course of business of providing financial news and pricing
information to institutional investors and/or the general public, and
are widely recognized as accurate and reliable sources for such
information. For purposes of this requirement, the terms ``widely-
held'' and ``actively-traded'' shall be deemed to include any security
listed in an Index, as defined in Section IV(c) of this exemption; and
(2) Cross-trades of fixed-income securities involve only securities
for which market quotations are readily available from independent
sources that are engaged in the ordinary course of business of
providing financial news and pricing information to institutional
investors and/or the general public, and are widely recognized as
accurate and reliable sources for such information.
(g) The Manager receives no brokerage fees or commissions as a
result of the cross-trade.
(h) As of the date this exemption is granted, a plan's
participation in the cross-trading program of a Manager, as a result of
investments made in any Index or Model-Driven Fund that holds plan
assets is subject to a written authorization executed in advance of
such investment by a fiduciary of the plan which is independent of the
Manager engaging in the cross-trade transactions. For purposes of this
exemption, the requirement that the authorizing plan fiduciary be
independent of the Manager shall not apply in the case of a Manager
Plan.
(i) With respect to existing plan investors in any Index or Model-
Driven Fund that holds plan assets as of the date this exemption is
granted, the independent fiduciary is furnished with a written notice,
not less than forty-five (45) days prior to the implementation of the
cross-trading program, that describes the Fund's participation in the
cross-trading program of the Manager, provided that:
(1) Such notice allows each plan an opportunity to object to the
plan's participation in the cross-trading program as a Fund investor by
providing the plan with a special termination form;
(2) The notice instructs the independent plan fiduciary that
failure to return the termination form to the Manager, by a specified
date (which shall be at least 30 days following the plan's receipt of
the form) shall be deemed to be an approval by the plan of its
participation in the Manager's cross-trading program as a Fund
investor; and
(3) If the independent plan fiduciary objects to the plan's
participation in the cross-trading program as a Fund investor by
returning the termination form to the Manager by the specified date,
the plan is given the opportunity to withdraw from each Index or Model-
Driven Fund without penalty prior to the implementation of the cross-
trading program, within such time as may be reasonably necessary to
effectuate the withdrawal in an orderly manner.
(j) Prior to obtaining the authorization described in Section II(h)
of this exemption, and in the notice described in Section II(i) of this
exemption, the following statement must be provided by the Manager to
the independent plan fiduciary:
Investment decisions for the Fund (including decisions regarding
which securities to buy or sell, how much of a security to buy or sell,
and when to execute a sale or purchase of securities for the Fund) will
not be based in whole or in part by the Manager on the availability of
cross-trade opportunities and will be made prior to the identification
and determination of any cross-trade opportunities. In addition, all
cross-trades by a Fund will be based solely upon a ``triggering event''
set
[[Page 26426]]
forth in this exemption. Records documenting each cross-trade
transaction will be retained by the Manager.
(k) Prior to any authorization set forth in Section II(h) of this
exemption, and at the time of any notice described in Section II(i) of
this exemption, the independent plan fiduciary must be furnished with
any reasonably available information necessary for the fiduciary to
determine whether the authorization should be given, including (but not
limited to) a copy of this exemption, an explanation of how the
authorization may be terminated, detailed disclosure of the procedures
to be implemented under the Manager's cross-trading practices
(including the ``triggering events'' that will create the cross-trading
opportunities, the independent pricing services that will be used by
the Manager to price the cross-traded securities, and the methods that
will be used for determining closing price), and any other reasonably
available information regarding the matter that the authorizing plan
fiduciary requests. The independent plan fiduciary must also be
provided with a statement that the Manager will have a potentially
conflicting division of loyalties and responsibilities to the parties
to any cross-trade transaction and must explain how the Manager's
cross-trading practices and procedures will mitigate such conflicts.
With respect to Funds that are added to the Manager's cross-trading
program or changes to, or additions of, triggering events regarding
Funds, following the authorizations described in Section II(h) or
Section II(i) of this exemption, the Manager shall provide a notice to
each relevant independent plan fiduciary of each plan invested in the
affected Funds prior to, or within ten (10) days following, such
addition of Funds or change to, or addition of, triggering events,
which contains a description of such Fund(s) or triggering event(s).
Such notice will also include a statement that the plan has the right
to terminate its participation in the cross-trading program and its
investment in any Index Fund or Model-Driven Fund without penalty at
any time, as soon as is necessary to effectuate the withdrawal in an
orderly manner.
(l) At least annually, the Manager notifies the independent
fiduciary for each plan that has previously authorized participation in
the Manager's cross-trading program as a Fund investor, that the plan
has the right to terminate its participation in the cross-trading
program and its investment in any Index Fund or Model-Driven Fund that
holds plan assets without penalty at any time, as soon as is necessary
to effectuate the withdrawal in an orderly manner. This notice shall
also provide each independent plan fiduciary with a special termination
form and instruct the fiduciary that failure to return the form to the
Manager by a specified date (which shall be at least thirty (30) days
following the plan's receipt of the form) shall be deemed an approval
of the subject plan's continued participation in the cross-trading
program as a Fund investor. In lieu of providing a special termination
form, the notice may permit the independent plan fiduciary to utilize
another written instrument by the specified date to terminate the
plan's participation in the cross-trading program, provided that in
such case the notice explicitly discloses that a termination form may
be obtained from the Manager upon request. Such annual re-authorization
must provide information to the relevant independent plan fiduciary
regarding each Fund in which the plan is invested, as well as explicit
notification that the plan fiduciary may request and obtain disclosures
regarding any new Funds in which the plan is not invested that are
added to the cross-trading program, or any new triggering events (as
defined in Section IV(d) of this exemption) that may have been added to
any existing Funds in which the plan is not invested, since the time of
the initial authorization described in Section II(h) of this exemption,
or the time of the notice described in Section II(i) of this exemption.
(m) With respect to a cross-trade involving a Large Account:
(1) The cross-trade is executed in connection with a portfolio
restructuring program, as defined in Section IV(f) of this exemption,
with respect to all or a portion of the Large Account's investments
which an independent fiduciary of the Large Account (other than in the
case of any assets of a Manager Plan) has authorized the Manager to
carry out or to act as a ``trading adviser,'' as defined in Section
IV(g) of this exemption, in carrying out a Large Account-initiated
liquidation or restructuring of its portfolio;
(2) Prior to the cross-trade, a fiduciary of the Large Account who
is independent of the Manager (other than in the case of any assets of
a Manager Plan) \4\ has been fully informed of the Manager's cross-
trading program, has been provided with the information required in
Section II(k) of this exemption, and has provided the Manager with
advance written authorization to engage in cross-trading in connection
with the restructuring, provided that--
---------------------------------------------------------------------------
\4\ However, proper disclosures must be made to, and written
authorization must be made by, an appropriate plan fiduciary for the
Manager Plan in order for the Manager Plan to participate in a
specific portfolio restructuring program as part of a Large Account.
---------------------------------------------------------------------------
(A) Such authorization may be terminated at will by the Large
Account upon receipt by the Manager of written notice of termination.
(B) A form expressly providing an election to terminate the
authorization, with instructions on the use of the form, is supplied to
the authorizing Large Account fiduciary concurrent with the receipt of
the written information describing the cross-trading program. The
instructions for such form must specify that the authorization may be
terminated at will by the Large Account, without penalty to the Large
Account, upon receipt by the Manager of written notice from the
authorizing Large Account fiduciary;
(3) All cross-trades made in connection with the portfolio
restructuring program must be completed by the Manager within sixty
(60) days of the initial authorization (or initial receipt of assets
associated with the restructuring, if later) to engage in such
restructuring by the Large Account's independent fiduciary, unless such
fiduciary agrees in writing to extend this period for another thirty
(30) days; and,
(4) No later than thirty (30) days following the completion of the
Large Account's portfolio restructuring program, the Large Account's
independent fiduciary must be fully apprised in writing of all cross-
trades executed in connection with the restructuring. Such writing
shall include a notice that the Large Account's independent fiduciary
may obtain, upon request, the information described in Section III(a)
of this exemption, subject to the limitations described in Section
III(b) of this exemption. However, if the program takes longer than
sixty (60) days to complete, interim reports containing the transaction
results must be provided to the Large Account fiduciary no later than
fifteen (15) days following the end of the initial sixty (60) day
period and the succeeding thirty (30) day period.
Section III. General Conditions
(a) The Manager maintains or causes to be maintained for a period
of six (6) years from the date of each cross-trade the records
necessary to enable the persons described in paragraph (b) of this
Section to determine whether the conditions of this exemption have been
met, including records which identify:
[[Page 26427]]
(1) On a Fund by Fund basis, the specific triggering events which
result in the creation of the model prescribed output or trade list of
specific securities to be cross-traded;
(2) On a Fund by Fund basis, the model prescribed output or trade
list which describes: (A) Which securities to buy or sell; and (B) how
much of each security to buy or sell; in detail sufficient to allow an
independent plan fiduciary to verify that each of the above decisions
for the Fund was made in response to specific triggering events; and
(3) On a Fund by Fund basis, the actual trades executed by the Fund
on a particular day and which of those trades resulted from triggering
events.
Such records must be readily available to assure accessibility and
maintained so that an independent fiduciary, or other persons
identified below in paragraph (b) of this Part, may obtain them within
a reasonable period of time. However, a prohibited transaction will not
be considered to have occurred if, due to circumstances beyond the
control of the Manager, the records are lost or destroyed prior to the
end of the six-year period, and no party in interest other than the
Manager shall be subject to the civil penalty that may be assessed
under section 502(i) of the Act or to the taxes imposed by sections
4975(a) and (b) of the Code if the records are not maintained or are
not available for examination as required by paragraph (b) below.
(b)(1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of sections 504(a)(2) and (b) of the Act, the records
referred to in paragraph (a) of this Part are unconditionally available
at their customary location for examination during normal business
hours by--
(A) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service,
(B) Any fiduciary of a Plan participating in a cross-trading
program who has the authority to acquire or dispose of the assets of
the Plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer with respect to any Plan
participating in a cross-trading program or any duly authorized
employee or representative of such employer, and
(D) Any participant or beneficiary of any Manager Plan
participating in a cross-trading program, or any duly authorized
employee or representative of such participant or beneficiary.
(2) If, in the course of seeking to inspect records maintained by a
Manager pursuant to this Part, any person described in paragraph
(b)(1)(B) through (D) seeks to examine trade secrets, or commercial or
financial information of the Manager that is privileged or
confidential, and the Manager is otherwise permitted by law to withhold
such information from such person, the Manager may refuse to disclose
such information provided that, by the close of the thirtieth (30th)
day following the request, the Manager gives a written notice to such
person advising the person of the reasons for the refusal and that the
Department of Labor may request such information.
(3) The information required to be disclosed to persons described
in paragraph (b)(1)(B) through (D) shall be limited to information that
pertains to cross-trades involving a Fund or Large Account in which
they have an interest.
Section IV. Definitions
The following definitions apply for purposes of this exemption:
(a) ``Index Fund''--Any investment fund, account, or portfolio
sponsored, maintained, trusteed, or managed by a Manager or an
Affiliate, in which one or more investors invest, and--
(1) Which is designed to track the rate of return, risk profile,
and other characteristics of an Index, as defined in Section IV(c) of
this exemption, by either (i) replicating the same combination of
securities which compose such Index or (ii) sampling the securities
which compose such Index based on objective criteria and data;
(2) For which the Manager does not use its discretion, or data
within its control, to affect the identity or amount of securities to
be purchased or sold;
(3) That either contains ``plan assets'' subject to the Act, is an
investment company registered under the Investment Company Act of 1940,
or contains assets of one or more institutional investors, which may
include, but not be limited to, such entities as an insurance company
separate account or general account, a governmental plan, a university
endowment fund, a charitable foundation fund, a trust or other fund
which is exempt from taxation under section 501(a) of the Code; and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Index Fund which is intended
to benefit a Manager or an Affiliate, or any party in which a Manager
or an Affiliate may have an interest.
(b) ``Model-Driven Fund''--Any investment fund, account, or
portfolio sponsored, maintained, trusteed, or managed by the Manager or
an Affiliate in which one or more investors invest, and--
(1) Which is composed of securities the identity of which and the
amount of which are selected by a computer model that is based on
prescribed objective criteria using independent third party data, not
within the control of the Manager, to transform an Index, as defined in
Section IV(c) of this exemption;
(2) Which either contains ``plan assets'' subject to the Act, is an
investment company registered under the Investment Company Act of 1940,
or contains assets of one or more institutional investors, which may
include, but not be limited to, such entities as an insurance company
separate account or general account, a governmental plan, a university
endowment fund, a charitable foundation fund, a trust or other fund
which is exempt from taxation under section 501(a) of the Code; and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Model-Driven Fund or the
utilization of any specific objective criteria which is intended to
benefit a Manager or an Affiliate, or any party in which a Manager or
an Affiliate may have an interest.
(c) ``Index''--A securities index that represents the investment
performance of a specific segment of the public market for equity or
debt securities in the United States and/or foreign countries, but only
if--
(1) The organization creating and maintaining the index is--
(A) Engaged in the business of providing financial information,
evaluation, advice, or securities brokerage services to institutional
clients,
(B) A publisher of financial news or information, or
(C) A public securities exchange or association of securities
dealers; and,
(2) The index is created and maintained by an organization
independent of the Manager, as defined in Section IV(i) of this
exemption; and,
(3) The index is a generally accepted standardized index of
securities which is not specifically tailored for the use of the
Manager.
(d) ``Triggering Event'':
(1) A change in the composition or weighting of the Index
underlying a Fund by the independent organization creating and
maintaining the Index;
(2) A material amount of net change in the overall level of assets
in a Fund, as a result of investments in and withdrawals from the Fund,
provided that:
[[Page 26428]]
(A) Such material amount has either been identified in advance as a
specified amount of net change relating to such Fund and disclosed in
writing as a ``triggering event'' to an independent fiduciary of each
plan having assets held in the Fund prior to, or within ten (10) days
following, its inclusion as a ``triggering event'' for such Fund or the
Manager has otherwise disclosed in the description of its cross-trading
practices pursuant to Section II(k) of this exemption the parameters
for determining a material amount of net change, including any amount
of discretion retained by the Manager that may affect such net change,
in sufficient detail to allow the independent fiduciary to determine
whether the authorization to engage in cross-trading should be given;
and
(B) Investments or withdrawals as a result of the Manager's
discretion to invest or withdraw assets of a Manager Plan, other than a
Manager Plan which is a defined contribution plan under which
participants direct the investment of their accounts among various
investment options, including such Fund, will not be taken into account
in determining the specified amount of net change;
(3) An accumulation in the Fund of a material amount of either:
(A) Cash which is attributable to interest or dividends on, and/or
tender offers for, portfolio securities; or
(B) Stock attributable to dividends on portfolio securities;
provided that such material amount has either been identified in
advance as a specified amount relating to such Fund and disclosed in
writing as a ``triggering event'' to an independent fiduciary of each
plan having assets held in the Fund prior to, or within ten (10) days
after, its inclusion as a ``triggering event'' for such Fund, or the
Manager has otherwise disclosed in the description of its cross-trading
practices pursuant to Section II(k) of this exemption the parameters
for determining a material amount of accumulated cash or securities,
including any amount of discretion retained by the Manager that may
affect such accumulated amount, in sufficient detail to allow the
independent fiduciary to determine whether the authorization to engage
in cross-trading should be given;
(4) A change in the composition of the portfolio of a Model-Driven
Fund mandated solely by operation of the formulae contained in the
computer model underlying the Model-Driven Fund where the basic factors
for making such changes (and any fixed frequency for operating the
computer model) have been disclosed in writing to an independent
fiduciary of each plan having assets held in the Model-Driven Fund,
prior to, or within ten (10) days after, its inclusion as a
``triggering event'' for such Model-Driven Fund; or
(5) A change in the composition or weighting of a portfolio for an
Index Fund or a Model-Driven Fund which results from an independent
fiduciary's direction to exclude certain securities or types of
securities from the Fund, notwithstanding that such securities are part
of the index used by the Fund.
(e) ``Large Account''--Any investment fund, account, or portfolio
that is not an Index Fund or a Model-Driven Fund sponsored, maintained,
trusteed (other than a Fund for which the Manager is a nondiscretionary
trustee) or managed by the Manager, which holds assets of either:
(1) An employee benefit plan within the meaning of section 3(3) of
the Act that has $50 million or more in total assets (for purposes of
this requirement, the assets of one or more employee benefit plans
maintained by the same employer, or controlled group of employers, may
be aggregated provided that such assets are pooled for investment
purposes in a single master trust);
(2) An institutional investor that has total assets in excess of
$50 million, such as an insurance company separate account or general
account, a governmental plan, a university endowment fund, a charitable
foundation fund, a trust or other fund which is exempt from taxation
under section 501(a) of the Code; or
(3) An investment company registered under the Investment Company
Act of 1940 (e.g., a mutual fund) other than an investment company
advised or sponsored by the Manager; provided that the Manager has been
authorized to restructure all or a portion of the portfolio for such
Large Account or to act as a ``trading adviser'' (as defined in Section
IV(g) of this exemption) in connection with a portfolio restructuring
program (as defined in Section IV(f) of this exemption) for the Large
Account.
(f) ``Portfolio restructuring program''--Buying and selling the
securities on behalf of a Large Account in order to produce a portfolio
of securities which will be an Index Fund or a Model-Driven Fund
managed by the Manager or by another investment manager, or in order to
produce a portfolio of securities the composition of which is
designated by a party independent of the Manager, without regard to the
requirements of Section IV(a)(3) or (b)(2) of this exemption, or to
carry out a liquidation of a specified portfolio of securities for the
Large Account.
(g) ``Trading adviser''--A Merrill Lynch/BlackRock Related Entity
or Entities whose role is limited with respect to a Large Account to
the disposition of a securities portfolio in connection with a
portfolio restructuring program that is a Large Account-initiated
liquidation or restructuring within a stated period of time in order to
minimize transaction costs. The Merrill Lynch/BlackRock Related Entity
or Entities does not have discretionary authority or control with
respect to any underlying asset allocation, restructuring or
liquidation decisions for the account in connection with such
transactions and does not render investment advice [within the meaning
of 29 CFR 2510.3-21(c)] with respect to such transactions.
(h) ``Closing price''--The price for a security on the date of the
transaction, as determined by objective procedures disclosed to
investors in advance and consistently applied with respect to
securities traded in the same market, which procedures shall indicate
the independent pricing source (and alternates, if the designated
pricing source is unavailable) used to establish the closing price and
the time frame after the close of the market in which the closing price
will be determined.
(i) ``Manager''--A Merrill Lynch/BlackRock Related Entity which is:
(1) A bank or trust company, or any Affiliate thereof, which is
supervised by a state or federal agency; or
(2) An investment adviser or any Affiliate thereof which is
registered under the Investment Advisers Act of 1940.
(j) ``Affiliate''--An affiliate of a Manager includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the Manager:
(2) Any officer, director, employee or relative of such Manager, or
partner of any such Manager; and
(3) Any corporation or partnership of which such Manager is an
officer, director, partner or employee.
(k) ``Control''--The power to exercise a controlling influence over
the management or policies of a person other than an individual.
(l) ``Relative''--A relative is a person that is defined in section
3(15) of the Act (or a ``member of the family'' as that term is defined
in section 4975(e)(6) of the Code), or a brother, a sister, or a spouse
of a brother or sister.
(m) ``Nondiscretionary trustee''--A plan trustee whose powers and
duties
[[Page 26429]]
with respect to any assets of the plan are limited to (1) the provision
of nondiscretionary trust services to the plan, and (2) duties imposed
on the trustee by any provision or provisions of the Act or the Code.
The term ``nondiscretionary trust services'' means custodial services
and services ancillary to custodial services, none of which services
are discretionary. For purposes of this exemption, a person who is
otherwise a nondiscretionary trustee will not fail to be a
nondiscretionary trustee solely by reason of having been delegated, by
the sponsor of a master or prototype plan, the power to amend such
plan.
Background
On September 29, 2006, ML&Co. and BlackRock consummated a
transaction (the Merger), in which ML&Co. contributed Merrill Lynch
Investment Managers, LLC (MLIM) and various other assets and
subsidiaries that comprised its investment management business to
BlackRock in exchange for approximately 45% of the outstanding voting
securities of BlackRock. Prior to the Merger, ML&Co. and its affiliates
engaged in various types of transactions, involving employee benefit
plans, in reliance on, and in accordance with the conditions of various
class exemptions (the Applicable Exemptions) \5\ issued by the
Department. Also, prior to the Merger, affiliates of ML&Co. engaged in
the same transactions as described in the Applicable Exemptions,
involving plans, with affiliates of BlackRock for which no exemption
was required because ML&Co. had, at most, a de minimis ownership
interest in BlackRock.
---------------------------------------------------------------------------
\5\ Parts III and IV of PTE 75-1 (40 FR 50845, October 31,
1975); PTE 77-3 (42 FR 18734, April 8, 1977); PTE 77-4 (42 FR 18732,
April 8, 1977); PTE 79-13 (44 FR 25533, May 1, 1979); PTE 86-128 (51
FR 41686, November 18, 1986; as amended by 67 FR 64137, October 17,
2002); and PTE 2002-12 (67 FR 9483, March 1, 2002).
---------------------------------------------------------------------------
As a result of the Merger, certain transactions involving companies
affiliated with ML&Co. and companies affiliated with BlackRock may now
be prohibited transactions as defined in section 406 of the Act.
However, the ownership interest existing between ML&Co. and its
affiliates and BlackRock and its affiliates may nevertheless not result
in the various entities being considered ``affiliates'' of each other
as defined in the Applicable Exemptions. As the Applicable Exemptions
extend relief only to affiliated entities, as defined thereunder,
ML&Co. and its affiliates, and BlackRock and its affiliates may not be
able to take advantage of the relief provided by the Applicable
Exemptions.
Accordingly, the Department is proposing an individual exemption
which will enable the Applicants to engage in the transactions
described in the Applicable Exemptions, provided the conditions
contained herein are met.
Summary of Facts and Representations
1. BlackRock, headquartered in New York, NY, is one of the largest
publicly-traded investment management firms in the world. BlackRock,
through its Securities and Exchange Commission (SEC)-registered
investment advisor subsidiaries, currently manages assets for
institutional and individual investors worldwide through a variety of
equity, fixed income, cash management and alternative investment
products. As of June 30, 2007, BlackRock had approximately $1.2
trillion in assets under management.
2. ML&Co. is a holding company that, through its subsidiaries,
provides broker-dealer, investment banking, financing, wealth
management, advisory, insurance, lending and related products and
services on a global basis. ML&Co. is subject to group-wide supervision
by the SEC.
3. On September 29, 2006, ML&Co. combined its asset management
business with BlackRock (i.e., the Merger). Prior to the Merger, PNC
Financial Services Group, Inc. (PNC) owned approximately 70.6% of
BlackRock. As a result of the Merger, ML&Co. now owns a 50.3% economic
interest and an approximate 45% voting interest in BlackRock, and PNC's
ownership interest has been reduced to approximately 34% of BlackRock.
The remaining interest in BlackRock is owned by the public and by
BlackRock employees.
4. All BlackRock capital stock beneficially owned from time to time
by ML&Co. and its related companies (other than in certain fiduciary
capacities and customer or market-making accounts) is subject to the
terms and provisions of a Stockholders' Agreement as amended by
Amendment No. 1 thereto (the Stockholders' Agreement), which was
entered into on February 15, 2006.
5. The Stockholders' Agreement will remain in effect until ML&Co.
beneficially owns less than 20% of BlackRock's voting stock or until
five years after the closing date of the Merger (Closing Date),
whichever comes later, except that the transfer restrictions will
continue to apply until ML&Co. beneficially owns less than 5% of such
voting stock. Additionally, the restrictions, obligations and
prohibitions on ML&Co. ownership of BlackRock securities may not be
modified, amended or waived unless approved by either all of the
independent directors of BlackRock or at least two-thirds of the
directors of BlackRock. These restrictions, obligations and
prohibitions fall into four broad categories: Corporate governance,
share ownership, transfer restrictions, and non-competition.
6. ML&Co.'s rights to vote the shares of BlackRock voting stock,
communicate with other BlackRock stockholders and to otherwise express
its interests are expressly limited in the Stockholders' Agreement as
follows: (i) ML&Co. may designate only two directors, each in a
separate class, to the 17-member Board of Directors of BlackRock (the
Board) and, of the 17-member Board, seven directors were members of the
Board prior to the Merger and were independent of BlackRock, ML&Co. and
PNC, for purposes of NYSE Listed Company Manual Section 303A.02 and
Section 10A of the Securities Exchange Act of 1934, and were not
proposed by ML&Co. or PNC; two additional directors were determined by
BlackRock's pre-Merger board and satisfy the foregoing independence
standard; four directors are members of management (including three
from BlackRock and one from pre-Merger MLIM); two directors, as noted,
are designated by ML&Co. and two directors are designated by PNC,
thereby resulting in a Board with a majority of directors who are
independent of management, ML&Co. and PNC, less than 12% of whom are
designated by ML&Co. or PNC and nearly 25% of whom are members of
BlackRock management; (ii) All committees of the Board (other than its
executive committee) must consist solely of independent directors;
(iii) ML&Co. must ensure that all of its BlackRock voting stock is
present at any stockholder meeting, either in person or by proxy, for
purposes of establishing a quorum; (iv) ML&Co. must vote all of its
BlackRock voting stock on all matters (including elections of
directors) as recommended by the Board as long as consistent with the
terms of the Stockholders' Agreement; (v) ML&Co. has agreed that
neither it nor its affiliated companies nor any of their directors,
officers or agents will seek, solicit or make any statement to
BlackRock or its affiliated companies or their boards or managements,
any stockholder of BlackRock or any other person regarding any proposal
seeking (1) to control or influence the management, the Board or the
policies of BlackRock or its affiliated companies,
[[Page 26430]]
(2) any acquisition of BlackRock stock in excess of its permitted
holdings, (3) any acquisition of any securities, assets or business of
BlackRock or its affiliated companies, or (4) any recapitalization,
business combination or other extraordinary transaction involving
BlackRock or its affiliated companies; (vi) Certain limited matters
designated in the Stockholders' Agreement require approval by two-
thirds of the independent directors of BlackRock (including appointment
of a new CEO of BlackRock, sale of BlackRock, major acquisitions and
charter amendments), and certain other extraordinary matters require
consent from ML&Co. (the ML Consent Rights) (such as sale of BlackRock
to a major global competitor of ML&Co., sale of BlackRock within the
first five years of the Closing Date, sale in any one year of BlackRock
subsidiaries that produce more than 20% of BlackRock's revenue, changes
to certain of BlackRock's by-laws which would adversely affect ML&Co.'s
interests, settlement of regulatory matters that would result in a loss
of license by ML&Co., voluntary bankruptcy, actions that would cause
ML&Co. to become a bank holding company or amendment of the parallel
arrangements with PNC in a manner materially averse to ML&Co. or
materially beneficial to PNC); and (vii) The first three of the ML
Consent Rights terminate if there is a change in control of ML&Co., and
if such change occurs during the first five years after the Merger,
ML&Co. must also reduce its holdings below 25% or exchange all of its
shares for nonvoting participating preferred stock.
7. Among the restrictions that ML&Co. has agreed to in the
Stockholders' Agreement, there are two fundamental restrictions with
respect to its ownership of BlackRock capital stock: (i) ML&Co. and its
related companies may not seek to acquire or acquire beneficial
ownership of any BlackRock capital stock or equivalent securities if,
after giving effect to any such acquisition, ML&Co. and its related
companies would beneficially own in excess of 49.8% of the total voting
power of all outstanding BlackRock voting securities, or BlackRock
voting securities and preferred stock in excess of 49.8% of the
outstanding BlackRock voting securities and preferred stock combined on
a fully diluted basis; and (ii) ML&Co. must sell stock as necessary to
keep its holdings below such levels.
8. In light of the difficulty ML&Co. may experience in acquiring
additional BlackRock capital stock if BlackRock issues additional
voting securities beyond certain levels, ML&Co. will have the right to
purchase additional preferred stock to maintain its then current
economic ownership level and to purchase additional voting securities
if necessary to prevent dilution below 90% of its voting securities
limitation.
9. ML&Co. is prohibited by the terms of the Stockholders' Agreement
from transferring any of its BlackRock capital stock to any person who
would as a result beneficially own more than 5% of BlackRock's voting
stock. ML&Co. is also restricted in the following ways: (i) ML&Co. may
sell its BlackRock capital stock only in broadly distributed public
offerings, or in ordinary unsolicited broker transactions to persons
who will not beneficially own more than 5% of BlackRock's voting stock
after such sale (after providing BlackRock with a right to match any
offer), or to one of its related companies which agrees in writing with
BlackRock to be bound by the Stockholders' Agreement as if it were an
initial signatory thereto; (ii) ML&Co. must obtain prior written
consent to engage in any transfers not provided for in (i) above; and
(iii) If ML&Co. wishes to or is required to transfer an amount of
BlackRock voting stock constituting more than 10% of the total voting
power, ML&Co. must coordinate such transfer with BlackRock.
10. The Stockholders' Agreement substantially curtails ML&Co.'s
ability to compete with BlackRock in the asset management business as
well as BlackRock's ability to compete with ML&Co. in the retail
securities brokerage business.
11. The transactions described in this proposed exemption are the
same as the transactions described in PTEs 75-1, Parts III and IV; PTE
77-3; PTE 77-4; PTE 79-13; PTE 86-128; and PTE 2002-12 (i.e., the
Applicable Exemptions), and the conditions would be the same conditions
provided for in the Applicable Exemptions. However, the Applicable
Exemptions contain definitions of the term ``affiliate'' which might
not apply to all of the entities related to ML&Co. and to BlackRock
after the Merger. Accordingly, the Applicants have sought the
individual exemption proposed herein in order that such entities may
continue to engage in the transactions described in the Applicable
Exemptions.
12. The Applicants have also requested relief for their related
entities which may satisfy this individual exemption in the future. For
a variety of business reasons, the Applicants may reorganize their
respective businesses or establish new entities that will perform the
same or similar functions as existing entities. Further, the Applicants
may acquire entities that act as investment advisers or other service
providers to plans or may otherwise be considered parties in interest
to plans by virtue of their relationship to the Applicants. However,
the Applicants are not requesting relief, nor is the Department herein
proposing any relief, for an entity that would be a successor of ML&Co.
or of BlackRock.
13. The Applicants had discussions concerning the possible
ramifications of the Merger with respect to the Applicable Exemptions
with the Department both prior to and continuing after the date of the
Merger. The Applicants are requesting relief retroactive to September
29, 2006, the date of the Merger, to the extent that they and their
related entities have been engaging in transactions described in the
Applicable Exemptions in accordance with the conditions therein (other
than the definition of ``affiliate'').
14. The Applicants represent that transactions covered by the
proposed individual exemption have been engaged in in accordance with
the conditions of the Applicable Exemptions following consummation of
the Merger. However, with regard to Section VIII of the proposed
individual exemption pertaining to PTE 86-128, it should be noted that
prior to the effective date of the merger, MLIM, as a subsidiary of
ML&Co., engaged in transactions in reliance on, and in accordance with,
the conditions of PTE 86-128. In this regard, it is represented that
certain independent plan fiduciaries authorized MLIM to utilize the
relief provided by PTE 86-128 with respect to transactions involving
any broker-dealer that is affiliated with ML&Co. As a result of the
Merger, MLIM became a subsidiary of BlackRock and it is represented
that MLIM continued to engage in those same transactions for which
relief is provided by PTE 86-128. The Applicants maintain that reliance
on the existing consents obtained from certain independent plan
fiduciaries was appropriate, because MLIM, notwithstanding the fact
that it had become a subsidiary of BlackRock, was continuing an
existing practice for which it had already obtained affirmative consent
in accordance with the requirements of PTE 86-128. Accordingly, instead
of seeking new authorization, BlackRock sent a letter to the
authorizing plan fiduciary of each client plan and pooled fund subject
to the Act or the Code after the closing of the Merger notifying such
fiduciaries of the Merger and that the authorization remained in place,
unless such fiduciaries elected to terminate such authorization. It is
represented that in
[[Page 26431]]
the case of plans covered by the Act, a termination form was included
with such letter. The Applicants maintain that provision of notice of
the Merger and the right to terminate an authorization was consistent
with the annual ``negative consent'' provided for in Part III(c) of PTE
86-128. With respect to existing client plans of BlackRock and any of
its affiliates, on the effective date of the Merger, and client plans
that retained BlackRock or any of its affiliates following the
effective date of the Merger, it is represented that BlackRock has
implemented a compliance program designed to comply with the
requirements of PTE 86-128. In this regard, for BlackRock and any of
its affiliates that had not been relying on PTE 86-128 prior to the
consummation of the Merger, affirmative consents have been and will be
obtained.
15. In summary, the Applicants represent that the subject
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
transactions covered by the proposed exemption are the same as the
transactions described in the Applicable Exemptions; (b) The conditions
contained in the proposed exemption are the same as those in the
Applicable Exemptions (except for the definition of ``affiliate''
therein); (c) The rationale for providing the same exemptive relief as
is available under the Applicable Exemptions is the same as providing
the proposed exemptive relief described herein; and (d) Absent the
requested relief, plan participants and beneficiaries would be
precluded from gaining access to certain favorable investment
opportunities or receiving certain services from the Applicants and
their related entities.
Temporary Nature of Exemption
The Department has determined that the relief provided by this
exemption is temporary in nature. The exemption, if granted, will be
effective September 29, 2006, and will expire on the day which is five
(5) years from the date of the publication of the final exemption in
the Federal Register. Accordingly, the relief provided by this
exemption will not be available upon the expiration of such five year
period for any new or additional transactions, as described herein,
after such date, but would continue to apply beyond the expiration of
such five year period for continuing transactions entered into during
the effective dates of this exemption; provided the conditions of this
exemption continue to be satisfied. Should the Applicants wish to
extend, beyond the expiration of such five year period, the relief
provided by this exemption to new or additional transactions, the
Applicants may submit another application for exemption. In this
regard, the Department would require that prior to filing another
exemption application seeking relief for new or additional
transactions, the Applicants must document compliance with the
conditions of this exemption.
Notice to Interested Persons
The Applicants represent that because those plans proposing to
engage in the covered transactions cannot all be identified, the only
practical means of notifying independent plan fiduciaries or plan
participants of such affected plans is by publication of the proposed
exemption in the Federal Register. Therefore, any comments from
interested persons must be received by the Department no later than
June 9, 2008.
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 above, within the time frame, as set forth above.
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 above.
FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8540. (This is not a
toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 29th day of April, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-10263 Filed 5-8-08; 8:45 am]
BILLING CODE 4510-29-P
|