[Federal Register: January 17, 2008 (Volume 73, Number 12)]
[Notices]
[Page 3274-3281]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja08-96]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application Nos. and Grant of Individual Exemptions
involving; D-11318, Barclays Global Investors, N.A., (BGI) and its
Investment Advisory Affiliates, including Barclays Global Fund Advisors
(BGFA; together, the Applicants); and D-11417, Citigroup, Inc.
(Citigroup)]
Prohibited Transaction Exemption 2008-01
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
being granted solely by the Department because, 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 proposed to the Secretary of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Barclays Global Investors, N.A., (BGI) and its Investment Advisory
Affiliates, including Barclays Global Fund Advisors (BGFA; together,
the Applicants)
Located in San Francisco, California
[Prohibited Transaction Exemption 2008-01; Exemption Application No. D-
11318]
Exemption
Section I. Transactions Involving Open-End Management Investment
Companies Other Than Exchange-Traded Funds
Effective as of September 10, 2007, the restrictions of sections
406(a) and (b)
[[Page 3275]]
of the Act, section 8477(c)(1) and (c)(2) of FERSA, and the taxes
imposed by section 4975(a) and (b) of the Code, by reason of section
4975(c)(1)(A) through (F) of the Code, shall not apply to the
acquisition, sale or exchange by an Account of shares, including
through in-kind redemptions of shares or acquisitions of shares in
exchange for Account assets transferred in-kind from an Account, of an
open-end investment company (``the Fund'') registered under the
Investment Company Act of 1940 (the 1940 Act), other than an exchange-
traded fund (an ``ETF''), the Investment Adviser for which is also a
fiduciary with respect to the Account (or an affiliate of such
fiduciary) (hereinafter, BGI and all its affiliates will be referred to
as ``Investment Adviser''), and the receipt of fees for acting as an
investment adviser for such Funds, as well as fees for providing other
services to the Funds which are ``Secondary Services,'' as defined
herein, in connection with the investment by the Accounts in shares of
the Funds, provided that the conditions set forth in Section II are
met.
Section II. Conditions
(a) The Account does not pay a sales commission or other similar
fees to the Investment Adviser or its affiliates in connection with
such acquisition, sale, or exchange.
(b) The Account does not pay a redemption or similar fee to the
Investment Adviser in connection with the sale by the Account to the
Fund of such shares, and the existence of any other redemption fee is
disclosed in the Fund's prospectus in effect at all times.
(c) The Account does not pay an investment management, investment
advisory or similar fee with respect to Account assets invested in Fund
shares for the entire period of such investment. This condition does
not preclude the payment of investment advisory fees by the Fund under
the terms of its investment advisory agreement adopted in accordance
with section 15 of the Investment Company Act of 1940 (the 1940 Act).
This condition also does not preclude payment of an investment advisory
fee by the Account under the following circumstances:
(1) For Accounts billed in arrears, an investment advisory fee may
be paid based on total Account assets from which a credit has been
subtracted representing the Account's pro rata share of investment
advisory fees paid by the Fund;
(2) For Accounts billed in advance, the Investment Adviser must
employ a reasonably designed method to ensure that the amount of the
prepaid fee that constitutes the fee with respect to the Account assets
invested in the Fund shares:
(A) Is anticipated and subtracted from the prepaid fee at the time
of payment of such fee,
(B) Is returned to the Account no later than during the immediately
following fee period or
(C) 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, 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; or
(3) An investment advisory fee may be paid based on total plan
assets if the Account will receive a cash rebate of such Account's
proportionate share of all fees charged to the Fund by the Investment
Adviser for investment management, investment advisory or similar
services no later than one business day after the receipt of such fees
by the Investment Adviser.
(d) The rebating, crediting, or offsetting of any fees in paragraph
(c) is audited at least annually by the Investment Adviser through a
system of internal controls to verify the accuracy of the fee mechanism
adopted by the Investment Adviser under paragraph (c).
(e) The combined total of all fees received by the Investment
Adviser for the provision of services to an Account, and for the
provision of any services to a Fund in which an Account may invest, is
not in excess of ``reasonable compensation'' within the meaning of
section 408(b)(2) of the Act;
(f) The Investment Adviser and its affiliates do not receive any
fees payable pursuant to Rule 12b-1 under the 1940 Act in connection
with the transactions covered by this exemption;
(g) In advance of any initial investment in a Fund by a Separately
Managed Account or by a new Plan investor in a Pooled Fund, a Second
Fiduciary with respect to that Plan, who is independent of and
unrelated to the Investment Adviser or any affiliate thereof, receives
in written or in electronic form, full and detailed written disclosure
of information concerning such Fund(s). The disclosure described in
this paragraph (g) includes, but is not limited to:
(1) A current prospectus issued by each of the Fund(s);
(2) A statement describing the fees for investment advisory or
similar services, any Secondary Services, and all other fees to be
charged to or paid by the Account and by the Fund(s), including the
nature and extent of any differential between the rates of such fees;
(3) The reasons why the Investment Adviser may consider such
investment to be appropriate for the Account;
(4) A statement describing whether there are any limitations
applicable to the Investment Adviser with respect to which Account
assets may be invested in shares of the Fund(s) and, if so, the nature
of such limitations, and
(5) A copy of the proposed exemption and this final exemption, and
any other reasonably available information regarding the transaction
described herein that the Second Fiduciary requests.
(h) After receipt and consideration of the information referenced
in paragraph (g), the Second Fiduciary of the Separately Managed
Account or the new Plan investing in a Pooled Fund approves in writing
the investment of Plan assets in each particular Fund and the fees to
be paid by a Fund to the Investment Adviser.
(i)(1) In the case of existing Plan investors in a Pooled Fund,
such Pooled Fund may not engage in any covered transactions pursuant to
this exemption, unless the Second Fiduciary receives in written or in
electronic form, the information described in paragraph (2) of this
paragraph (i) not less than 30 days prior to the Investment Adviser's
engaging in the covered transactions on behalf of the Pooled Fund
pursuant to this exemption.
(2) The information required by paragraph (1) of this section
includes:
(A) A notice of the Pooled Fund's intent to engage in the covered
transactions described herein, a copy of the notice of proposed
exemption, and a copy of this final exemption;
(B) Any other reasonably available information regarding the
covered transactions that a Second Fiduciary requests; and
(C) A Termination Form, within the meaning of paragraph (j).
Approval to engage in any covered transactions pursuant to this
exemption may be presumed notwithstanding that the Investment Adviser
does not receive any response from a Second Fiduciary.
(j) All authorizations made by a Second Fiduciary regarding
investments in a Fund and the fees paid to the Investment Adviser will
be subject to an annual reauthorization wherein any such prior
authorization shall be terminable at will by an Account, without
penalty to the Account, upon receipt by the Investment Adviser of
written notice of termination. A form expressly providing an election
to terminate the authorization (``Termination Form'') with instructions
[[Page 3276]]
on the use of the form will be supplied to the Second Fiduciary no less
than annually, in written or in electronic form. The instructions for
the Termination Form will include the following information:
(1) The authorization is terminable at will by the Account, without
penalty to the Account, upon receipt by the Investment Adviser of
written notice from the Second Fiduciary. Such termination will be
effected by the Investment Adviser by selling the shares of the Fund
held by the affected Account within one business day following receipt
by the Investment Adviser of the Termination Form or any other written
notice of termination; provided that if, due to circumstances beyond
the control of the Investment Adviser, the sale cannot be executed
within one business day, the Investment Adviser shall have one
additional business day to complete such sale; and provided further
that, where a Plan's interest in a Pooled Fund cannot be sold within
this timeframe, the Plan's interest will be sold as soon as
administratively practicable;
(2) Failure of the Second Fiduciary to return the Termination Form
will result in continued authorization of the Investment Adviser to
engage in the covered transactions on behalf of an Account; and
(3) The identity of BGI, the asset management affiliate of BGI, and
the affiliated investment advisers, and the address of the asset
management affiliate of BGI. The instructions will state that this
exemption is not available, unless the fiduciary of each Plan
participating in the covered transactions as an investor in a Pooled
Fund is, in fact, independent of the Investment Adviser. The
instructions will also state that the fiduciary of each such Plan must
advise the asset management affiliate of BGI, in writing, if it is not
a ``Second Fiduciary,'' as that term is defined, below, in Section
V(l).
However, if the Termination Form has been provided to the Second
Fiduciary pursuant to this paragraph or paragraphs (i), (k), or (l),
the Termination Form need not be provided again for an annual
reauthorization pursuant to this paragraph unless at least six months
has elapsed since the form was previously provided.
(k) In situations where the Fund-level fee is neither rebated nor
credited against the Account-level fee, the Second Fiduciary of each
Account invested in a particular Fund will receive full disclosure, in
written or in electronic form, in a statement, which is separate from
the Fund prospectus, of any proposed increases in the rates of fees for
investment advisory or similar services, and any Secondary Services, at
least 30 days prior to the implementation of such increase in fees,
accompanied by a Termination Form. In situations where the Fund-level
fee is rebated or credited against the Account-level fee, the Second
Fiduciary will receive full disclosure, in a Fund prospectus or
otherwise, in the same time and manner set forth above, of any
increases in the rates of fees to be charged by the Investment Adviser
to the Fund for investment advisory services. Failure to return the
Termination Form will be deemed an approval of the increase and will
result in the continued authorization of the Investment Adviser to
engage in the covered transactions on behalf of an Account.
(l) In the event that the Investment Adviser provides an additional
Secondary Service to a Fund for which a fee is charged or there is an
increase in the rate of any fees paid by the Funds to the Investment
Adviser for any Secondary Services resulting from either an increase in
the rate of such fee or from a decrease in the number or kind of
services provided by the Investment Adviser for such fees over an
existing rate for such Secondary Service in connection with a
previously authorized Secondary Service, the Second Fiduciary will
receive notice, at least 30 days in advance of the implementation of
such additional service or fee increase, in written or in electronic
form, explaining the nature and the amount of such services or of the
effective increase in fees of the affected Fund. Such notice shall be
accompanied by a Termination Form. Failure to return the Termination
Form will be deemed an approval of the Secondary Service and will
result in continued authorization of the Investment Adviser to engage
in the covered transactions on behalf of the Account.
(m) On an annual basis, the Second Fiduciary of an Account
investing in a Fund, will receive, in written or in electronic form:
(1) A copy of the current prospectus for the Fund and, upon such
fiduciary's request, a copy of the Statement of Additional Information
for such Fund, which contains a description of all fees paid by the
Fund to the Investment Adviser;
(2) A copy of the annual financial disclosure report of the Fund in
which such Account is invested, which includes information about the
Fund portfolios as well as audit findings of an independent auditor of
the Fund, within 60 days of the preparation of the report; and
(3) With respect to each of the Funds in which an Account invests,
in the event such Fund places brokerage transactions with the
Investment Adviser, the Investment Adviser will provide the Second
Fiduciary of such Account, in the same manner described above, at least
annually with a statement specifying the following (and responses to
oral or written inquiries of the Second Fiduciary as they arise):
(A) The total, expressed in dollars, brokerage commissions of each
Fund's investment portfolio that are paid to the Investment Adviser by
such Fund;
(B) The total, expressed in dollars, of brokerage commissions of
each Fund's investment portfolio that are paid by such Fund to
brokerage firms unrelated to the Investment Adviser;
(C) The average brokerage commissions per share, expressed as cents
per share, paid to the Investment Adviser by each portfolio of a Fund;
and
(D) The average brokerage commissions per share, expressed as cents
per share, paid by each portfolio of a Fund to brokerage firms
unrelated to the Investment Adviser.
(n) In all instances in which the Investment Adviser provides
electronic distribution of information to Second Fiduciaries who have
provided electronic mail addresses, such electronic disclosure will be
provided in a manner similar to the procedures described in 29 CFR
section 2520.104b-1(c).
(o) Any Separately Managed Account does not hold assets of a Plan
sponsored by the Investment Adviser or an affiliate. If a Pooled Fund
holds assets of a Plan or Plans sponsored by the Investment Adviser or
an affiliate, the total assets of all such Plans shall not exceed 15%
of the total assets of such Pooled Fund.
(p) In-kind transactions with an Account shall only involve
publicly-traded securities for which market quotations are readily
available, as determined pursuant to procedures established by the
Funds under Rule 2a-4 of the 1940 Act, and cash in the event that the
aforementioned securities are odd lot securities, fractional shares, or
accruals on such securities. Such securities will not include:
(1) Securities that, if publicly offered or sold, would require
registration under the Securities Act of 1933;
(2) Securities issued by entities in countries that (i) restrict or
prohibit the holding of securities by non-nationals other than through
qualified investment vehicles, such as the Funds, or (ii) permit
transfers of ownership of securities to be effected only by
[[Page 3277]]
transactions conducted on a local stock exchange;
(3) Certain portfolio positions (such as forward foreign currency
contracts, futures and options contracts, swap transactions,
certificates of deposit and repurchase agreements), that, although
liquid and marketable, involve the assumption of contractual
obligations, require special trading facilities, or can be traded only
with the counter-party to the transaction to effect a change in
beneficial ownership;
(4) Cash equivalents (such as certificates of deposit, commercial
paper, and repurchase agreements);
(5) Other assets that are not readily distributable (including
receivables and prepaid expenses), net of all liabilities (including
accounts payable); and
(6) Securities subject to ``stop transfer'' instructions or similar
contractual restrictions on transfer.
(q) Subject to the exceptions described in section (p) above, in
the case of an in-kind exchange of assets [in-kind redemptions and in-
kind transfers of Plan assets] between an Account and a Fund (other
than an ETF), the Account will receive its pro rata portion of the
securities of the Fund equal in value to that of the number of shares
redeemed, or the Fund shares having a total net asset value (NAV) equal
to the value of the assets transferred on the date of the transfer, as
determined in a single valuation, using sources independent of the
Investment Adviser, performed in the same manner as it would for any
other person or entity at the close of the same business day in
accordance with the procedures established by the Fund pursuant to Rule
2a-4 under the 1940 Act, and the then-existing valuation procedures
established by its Board of Directors or Trustees, as applicable for
the valuation of such assets, that are in compliance with the rules
administered by the Securities and Exchange Commission (the SEC). In
the case of a redemption, the value of the securities and any cash
received by the Account for each redeemed Fund share equals the NAV of
such share at the time of the transaction. In the case of any other in-
kind exchange, the value of the Fund shares received by the Account
equals the NAV of the transferred securities and any cash on the date
of the transfer.
(r) The Investment Adviser shall provide the Second Fiduciary with
a written confirmation containing information necessary to perform a
post-transaction review of any in-kind transaction so that the material
aspects of such transaction, including pricing, can be reviewed. Such
information must be furnished no later than thirty (30) business days
after the completion of the in-kind transaction. In the case of a
Pooled Fund, the Investment Adviser can satisfy the requirement with a
single aggregate report furnished to the Second Fiduciary containing
the required information for each in-kind transaction taking place
during a month. This aggregate report must be furnished to the Second
Fiduciary no later than thirty (30) business days after the end of that
month. The information to be provided pursuant to this Section II(r)
shall include:
(1) With respect to securities either transferred by, or received,
by an Account in-kind in exchange for Fund shares,
(i) the identity of each security either received by the Account
pursuant to the redemption, or transferred to the Fund by the Account,
(and the related aggregate dollar value of all securities) determined
in accordance with Rule 2a-4 under the 1940 Act and the then-existing
procedures established by the Board of Trustees of the Fund (using
sources independent of the Investment Adviser); and
(ii) the current market price of each security transferred or
received in-kind by the Account as of the date of the in-kind transfer.
(2) With respect to Fund shares either transferred by, or received
by, an Account in-kind in exchange for securities,
(i) the number of Fund shares held by the Account immediately
before the redemption (and the related per share net asset value and
the total dollar value of Fund shares, determined in accordance with
Rule 2a-4 under the 1940 Act, using sources independent of the
Investment Adviser); or
(ii) the number of Fund shares held by the Account immediately
after the in-kind transfer (and the related per share net asset value
of the Fund shares received and the total dollar value of Fund shares,
determined in accordance with Rule 2a-4 under the 1940 Act using
sources independent of the Investment Adviser).
(3) The identity of each pricing service or market-maker consulted
in determining the value of the securities.
(s) Prior to the consummation of an in-kind transaction, the
Investment Adviser must document in writing and determine that such
transaction is fair to the Account and comparable to, and no less
favorable than, terms obtainable at arm's-length between unaffiliated
parties, and that the in-kind transaction is in the best interests of
the Account and the participants and beneficiaries of the participating
Plans.
(t) All of the Accounts' other dealings with the Funds, the
Investment Adviser, or any affiliated person thereof, are on terms that
are no less favorable to the Account than such dealings are with other
shareholders of the Funds.
(u) BGI and its affiliates, as applicable, maintain, or cause to be
maintained, for a period of six (6) years from the date of any covered
transaction such records as are necessary to enable the persons,
described, below, in Section II(v), to determine whether the conditions
of this exemption have been met, except that--
(1) No party in interest with respect to a Plan which engages in
the covered transactions, other than BGI, and its affiliates, as
applicable, shall be subject to a civil penalty under section 502(i) of
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if
such records are not maintained, or not available for examination, as
required, below, by Section II(v); and
(2) A separate prohibited transaction shall not be considered to
have occurred solely because due to circumstances beyond the control of
BGI or its affiliate, as applicable, such records are lost or destroyed
prior to the end of the six-year period.
(v)(1) Except as provided, below, in Section II(v)(2), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to, above, in Section II(t) are
unconditionally available at their customary location for examination
during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
(ii) Any fiduciary of any Plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary; or
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a Plan that engages
in the covered transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a Plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(2) None of the persons described, above, in Section II(v)(1)(ii)--
(iv) shall be authorized to examine trade secrets of the Investment
Adviser, or commercial or financial information which is privileged or
confidential; and
(3) Should the Investment Adviser refuse to disclose information on
the basis that such information is exempt from disclosure, the
Investment Adviser
[[Page 3278]]
shall, by the close of the thirtieth (30th) day following the request,
provide a written notice advising that person of the reasons for the
refusal and that the Department may request such information.
Section III. Transactions Involving Exchange-Traded Funds
Effective as of September 10, 2007, the restrictions of sections
406(a) and (b) of the Act, section 8477(c)(1) and (c)(2) of FERSA, and
the taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (F) of the Code, shall not apply to the
following transactions involving an Account and an ETF, the Investment
Adviser for which is also a fiduciary with respect to the Account (or
an affiliate of such fiduciary) (i.e., ``Investment Adviser''), and the
receipt of fees for acting as an investment adviser for such ETF, as
well as fees for providing other services to the ETF which are
``Secondary Services,'' as defined herein, in connection with the
investment by the Account in shares of the ETF, provided that the
conditions set forth in Section IV are met:
(a) The acquisition, sale or exchange by an Account of ETF shares,
including through in-kind exchanges, in a principal transaction with a
broker-dealer not an affiliate of the Investment Adviser, registered
under the Securities Exchange Act of 1934, including an Authorized
Participant.
(b) The acquisition or sale by an Account of ETF shares on a
national securities exchange when a broker-dealer not an affiliate of
the Investment Adviser, registered under the Securities Exchange Act of
1934, including an Authorized Participant, acts as agent for the
Account.
(c) The acquisition, sale or exchange by an Account of ETF shares,
including through in-kind exchanges, through an Authorized Participant,
acting as an agent dealing directly with the ETF, and the Account is
exchanging securities and/or cash for the ETF shares during a Creation
process, or exchanging ETF shares for securities and/or cash during a
Redemption process.
Section IV. Conditions
(a)(1) In the case of a principal transaction described in Section
III(a), the specific terms of the transaction are fixed at the time the
Account agrees to exchange the in-kind assets with the broker-dealer.
(2) In the case of a transaction described in Section III(c), the
value of the securities transferred to the ETF, in exchange for ETF
shares issued at the closing ETF NAV at the end of the business day,
and the value of the securities received from the ETF, in exchange for
ETF shares redeemed at the closing ETF NAV at the end of the business
day is: (A) Determined pursuant to a single valuation using sources
independent of the Investment Adviser; and (B) Performed in the same
manner as it would for any other person or entity at the end of the
same business day. Such valuation is made in accordance with procedures
established by the ETF pursuant to Rule 2a-4 under the 1940 Act, and
the then existing valuation procedures established by its Board of
Directors or Trustees, as applicable, that are in compliance with the
rules administered by the SEC.
In the case of a redemption, the value of the securities and any
cash received by the Account for each redeemed ETF share equals the NAV
of such share at the time of the transaction. In the case of any other
in-kind exchange, the value of the ETF shares received by the Account
equals the NAV of the transferred securities and any cash on the date
of the transfer.
(b) All ETFs are either Index Funds or Model-Driven Funds.
(c) The Authorized Participant is not an affiliate of the
Investment Adviser.
(d) Conditions (a) through (p), and (r) through (v) of Section II
have been met. For purposes of this Section IV(d), the term ``Fund'' in
Section II includes an ETF.
Section V. Definitions
(a) The term ``Account'' means either a Separately Managed Account
or a Pooled Fund in which investments are made by plans described in
section 3(3) of the Act and/or section 4975(e)(1) of the Code and a
plan covered by The Federal Employees' Retirement System Act of 1986
(FERSA).
(b) An ``affiliate'' of a person includes any person directly or
indirectly through one or more intermediaries, controlling, controlled
by, or under common control with the person; any officer of, director
of, highly compensated employee (within the meaning of Code section
4975(e)(2)(H)) of, or partner in any such person; and any corporation
or partnership of which such person is an officer, director, partner or
owner, or highly compensated employee (within the meaning of Code
section 4975(e)(2)(H)).
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``Authorized Participant'' means a broker-dealer
registered under the Securities Exchange Act of 1934 which may acquire
or redeem ETF Shares directly from ETFs. Such Authorized Participant is
not an affiliate of the Investment Adviser.
(e) The term ``Fund'' means any open end investment company
registered under the Investment Company Act of 1940, including
exchange-traded funds.
(f) The term ``Index'' means 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;
(C) A public securities exchange or association of securities
dealers; and,
(2) The index is created and maintained by an organization
independent of the Applicants and their affiliates; and,
(3) The index is a generally accepted standardized index of
securities which is not specifically tailored for the use of the
Applicants.
(g) The term ``Index Fund'' means any investment fund, sponsored,
maintained, trusteed or managed by the Applicants, 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 independently maintained securities
index by either (i) replicating the same combination of securities that
compose such index, or (ii) sampling the securities that compose such
index based on objective criteria and data;
(2) For which the Applicants do not use their discretion, or data
within their control, to affect the identity or amount of securities to
be purchased or sold; and
(3) That involves no agreement, arrangement or understanding
regarding the design or operation of the Fund which is intended to
benefit the Applicants, their affiliates, or any party in which the
Applicants or their affiliates have an interest.
(h) The term ``Investment Adviser'' means Barclays Global
Investors, N.A. or any of its current or future affiliates.
(i) The term ``Model-Driven Fund'' means any investment fund,
sponsored, maintained, trusteed or managed by the Applicants, in which
one or more investors invest, and--
(1) Which is composed of securities the identity of which and the
amount of
[[Page 3279]]
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 Applicants, to transform an index (as defined in (f),
above); and
(2) That involves no agreement, arrangement or understanding
regarding the design or operation of the fund or the utilization of any
specific objective criteria which is intended to benefit the
Applicants, their affiliates, or any party in which the Applicants or
their affiliates may have an interest.
(j) The term ``Plan'' means a plan described in section 3(3) of the
Act, a plan described in section 4975(e)(1) of the Code, and a plan
covered by FERSA.
(k) The term ``Pooled Fund'' means any commingled fund sponsored,
maintained, advised or trusteed by the Investment Adviser, which fund
holds Plan assets.
(l) The term ``Second Fiduciary'' means a fiduciary of a Plan who
is independent of and unrelated to the Investment Adviser. For purposes
of this exemption, the Second Fiduciary will not be deemed to be
independent of and unrelated to the Investment Adviser if:
(1) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with the Investment Adviser;
(2) Such fiduciary, or any officer, director, partner, or employee
of the fiduciary is an officer, director, partner, employee or
affiliate of the Investment Adviser; or
(3) Such fiduciary directly or indirect 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, affiliate or employee of the Investment
Adviser is a director of such Second Fiduciary, and if he or she
abstains from participation in (A) the choice of the Plan's investment
adviser, (B) the approval for the acquisition, sale, holding, and/or
exchange of Fund shares by such Plan, and (C) the approval of any
change in fees charged to or paid by the Plan in connection with any of
the transactions described herein, then subparagraph (2) above shall
not apply.
(m) The term ``Secondary Service'' means a service other than an
investment management, investment advisory or similar service which is
provided by the Investment Adviser to the Funds, including but not
limited to custodial, accounting, brokerage, administrative or any
other similar service.
(n) The term ``Separately Managed Account'' means any Account other
than a Pooled Fund, and includes single-employer Plans.
(o) The term ``Creation'' or ``Redemption'' refers to a transaction
where the ETF is the buyer or seller of large-blocks of ETF shares.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Notice) published on September
10, 2007 at 72 FR 51668.
Effective Date: This exemption is effective as of September 10,
2007.
Written Comments: The Department received one comment with respect
to the Notice, which was filed by the Applicants. The Applicants
addressed three points in the Notice in their comment letter. The
Applicants' commentary, a discussion of the Department's views in
response thereto and the modifications to the proposed exemption are
discussed below.
The Applicants noted that Section II(r) of the Notice requires the
delivery of certain information to all investors in a Pooled Fund. The
provision is also required for transactions described in Section III of
the Notice relating to ETF shares. Section II(r) of the Notice requires
that such information be furnished to the Second Fiduciary no later
than thirty (30) business days after the completion of the in-kind
transaction. While the Applicants do not object to the requirement for
Separately Managed Accounts, they stated in their comment letter that
they considered the requirement to be unduly burdensome for investors
in Pooled Funds.
The Department has considered this comment and has amended Section
II(r) to clarify that the Applicants, with respect to Pooled Funds, can
satisfy the requirement with a single aggregate report furnished to the
Second Fiduciary containing the required information for each in-kind
transaction taking place during a month. This aggregate report must be
furnished to the Second Fiduciary no later than thirty (30) business
days after the end of that month.
The Applicants also noted that several conditions of the Notice,
including Sections II(g), II(i), II(j), II(l), II(m) and II(n) provide
for written or electronic disclosure. The Applicants sought
clarification from the Department that the electronic disclosure may
encompass a combination of written or e-mail communication coupled with
Web site links, with paper copies to be supplied upon request. The
Applicants stated that the required communications would consist of
large documents, and that e-mails with large attachments are often
stopped at firewalls and cannot be readily accessed in a cost efficient
manner. In addition, the Applicants stated that paper copies of all
these reports are expensive, cumbersome and unwelcome from a client's
perspective because it is more difficult to share the information with
others in the organization.
The Department understands the concerns about electronically
transmitting a voluminous document as an attachment to an e-mail.
Accordingly, in such circumstances, the electronic communication of the
information required by the Notice may otherwise be provided by means
of an e-mail with an embedded link to the required disclosure,
provided: (1) The e-mail clearly describes both the information
required to be disclosed and its significance; (2) The activation of
the embedded link in the e-mail takes the reader directly to the
relevant document that is stored on the applicable Web site without any
further required action by the reader; and (3) The document remains on
the Web site for a reasonable period of time after appropriate and
necessary measures are taken to ensure the Second Fiduciary's actual
receipt of the e-mail. It is the Department's view that no changes to
the operative language of the Notice, with respect to this issue, are
necessary in view of the guidance provided herein.
The Applicants' final comment with respect to the Notice related to
Section II(o), which provided, in part, that if a Pooled Fund holds
assets of a Plan or Plans sponsored by the Investment Adviser or an
affiliate, the total assets of all such Plans shall not exceed 10% of
the total assets of such Pooled Fund. The Applicants commented that
they believed that this condition was unduly restrictive. The
Department has considered the comment and determined that the
appropriate limitation is 15% of the total assets of such Pooled Fund.
FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the
Department, telephone (202) 693-8546. (This is not a toll-free number.)
[[Page 3280]]
Citigroup, Inc. (Citigroup)
Located in New York, New York
[Prohibited Transaction Exemption No. 2008-02; Exemption Application
No. D-11417]
Exemption
Section I. Covered Transactions
The restrictions of sections 406(a)(1)(D) and 406(b) of ERISA and
the sanctions resulting from the application of section 4975 of the
Code, including the loss of exemption of an IRA pursuant to section
408(e)(2)(A) of the Code, by reason of section 4975(c)(1)(D), (E) and
(F) of the Code, shall not apply to the receipt of services at reduced
or no cost by an individual for whose benefit an IRA or, if self-
employed, a Keogh Plan, is established or maintained, or by members of
his or her family, from Citigroup pursuant to an arrangement in which
the account value of, or the fees incurred for services provided to,
the IRA or Keogh Plan is taken into account for purposes of determining
eligibility to receive such services, provided that each condition of
Section II of this exemption is satisfied.
Section II. Conditions
(a) The IRA or Keogh Plan whose account value, or whose fees paid,
are taken into account for purposes of determining eligibility to
receive services under the arrangement must be established and
maintained for the exclusive benefit of the participant covered under
the IRA or Keogh Plan, his or her spouse or their beneficiaries.
(b) The services offered under the arrangement must be of a type
that a qualified affiliate could offer consistent with all applicable
federal and state banking laws and all applicable federal and state
laws regulating broker-dealers.
(c) The services offered under the arrangement must be provided by
a qualified affiliate in the ordinary course of its business as a bank
or a broker-dealer to customers who qualify for reduced or no cost
services, but do not maintain IRAs or Keogh Plans with a qualified
affiliate.
(d) For the purpose of determining eligibility to receive services,
the arrangement satisfies:
(i) Eligibility requirements based on the account value of the IRA
or Keogh Plan are as favorable as any such requirement based on the
value of any other type of account which the qualified affiliate
includes to determine eligibility; and/or
(ii) Eligibility requirements based on the amount of fees incurred
by the IRA or Keogh Plan, are as favorable as any requirements based on
the amount of fees incurred by any other type of account which the
qualified affiliate includes to determine eligibility.
(e) The combined total of all fees for the provision of services to
the IRA or Keogh Plan is not in excess of reasonable compensation
within the meaning of section 408(b)(2) of ERISA and section 4975(d)(2)
of the Code.
(f) The investment performance of the investments made by the IRAs
and/or Keogh Plans is no less favorable than the investment performance
of identical investments that could have been made at the same time by
a customer of Citigroup who is not eligible for (or who does not
receive) reduced or no cost services.
(g) The services offered under the arrangement to the IRA or Keogh
Plan customer must be the same as are offered to non-IRA or non-Keogh
Plan customers of qualified affiliates with account values of the same
amount or the same amount of fees generated.
Section III. Definitions
The following definitions apply to this exemption:
(a) The term ``bank'' means a bank described in section 408(n) of
the Code.
(b) The term ``broker-dealer'' means a broker-dealer registered
under the Securities Exchange Act of 1934, as amended.
(c) The term ``IRA'' means an individual retirement account
described in Code section 408(a), an individual retirement annuity
described in Code section 408(b) or a Coverdell education savings
account described in section 530 of the Code. For purposes of this
exemption, the term IRA shall not include an IRA which is an employee
benefit plan covered by Title I of ERISA, except for a Simplified
Employee Pension (SEP) described in section 408(k) of the Code or a
Simple Retirement Account described in section 408(p) of the Code which
provides participants with the unrestricted authority to transfer their
balances to IRAs or Simple Retirement Accounts sponsored by different
financial institutions.
(d) The term ``Keogh Plan'' means a pension, profit-sharing, or
stock bonus plan qualified under Code section 401(a) and exempt from
taxation under Code section 501(a) under which some or all of the
participants are employees described in section 401(c) of the Code. For
purposes of this exemption, the term Keogh Plan shall not include a
Keogh Plan which is an employee benefit plan covered by Title I of
ERISA.
(e) The term ``account value'' means investments in cash or
securities held in the account for which market quotations are readily
available. For purposes of this exemption, the term cash shall include
savings accounts that are insured by a federal deposit insurance agency
and constitute deposits as that term is defined in 29 CFR 2550.408b-
4(c)(3). The term account value shall not include investments that are
offered by Citigroup (or a qualified affiliate) exclusively to IRAs and
Keogh Plans.
(f) The term ``qualified affiliate'' means any person directly or
indirectly controlling, controlled by, or under common control with
Citigroup Inc. that is a bank or broker-dealer.
(g) The term ``members of his or her family'' refers to
beneficiaries of the individual for whose benefit the IRA or Keogh Plan
is established or maintained, who would be members of the family as
that term is defined in Code section 4975(e)(6), or a brother, a
sister, or a spouse of a brother or sister.
(h) The term ``service'' includes incidental products of a de
minimis value which are directly related to the provision of services
covered by the exemption.
(i) The term ``fees'' means commissions and other fees received by
a broker-dealer from the IRA or Keogh Plan for the provision of
services, including, but not limited to, brokerage commissions,
investments management fees, investments advisory fees, custodial fees
and administrative fees.
(j) The term ``Citigroup'' means Citigroup Inc. and any person
directly or indirectly controlling, controlled by, or under common
control with Citigroup Inc.
(k) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
Effective Date: The exemption is effective as of March 1, 2007.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice of Proposed Exemption published on October 26, 2007, at 72
FR 60905.
FOR FURTHER INFORMATION CONTACT: Allison Padams-Lavigne, U.S.
Department of Labor, telephone (202) 693-8564. (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
[[Page 3281]]
disqualified person from certain other 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) This exemption is supplemental to and not in derogation of, any
other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 14th day of January, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-800 Filed 1-16-08; 8:45 am]
BILLING CODE 4510-29-P
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