EBSA
Notices
Prohibited Transaction Exemptions 2008-09 thru 2008-12; Grant of Individual Exemptions Involving D-11416, Wholesale Electronic Supply; D-11435, Merrill Lynch & Co., Inc.; D-11449, Pileco, Inc.; and D-11460, Mellon Bank, NA
[ 9/25/2008]
[ PDF]
FR Doc E8-22486
[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]
[Page 55526-55541]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-68]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application Nos. D-11416, D-11435, D-11449, and D-11460]
Prohibited Transaction Exemptions 2008-09 thru 2008-12; Grant of
Individual Exemptions Involving D-11416, Wholesale Electronic Supply;
D-11435, Merrill Lynch & Co., Inc.; D-11449, Pileco, Inc.; and D-11460,
Mellon Bank, NA
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains an exemption issued by the Department
of Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
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
[[Page 55527]]
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.
Wholesale Electronic Supply; Employees Profit Sharing Plan and Trust
(the Plan); Located in Dallas, TX
[Prohibited Transaction Exemption 2008-09; Exemption Application No. D-
11416]
Exemption
The restrictions in sections 406(a)(1)(A), 406(a)(1)(D), and
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) and (c)(1)(D) through (E) of the Code, shall not apply to
the sale of a note (the Note) by the Plan to Levco Enterprises, Inc., a
party in interest with respect to the Plan, provided that the following
conditions are satisfied:
(a) The terms and conditions of the sale are at least as favorable
to the Plan as those that the Plan could obtain in an arm's length
transaction with an unrelated party;
(b) The Plan receives $45,750.00, the outstanding principal balance
of the Note;
(c) The sale is a one-time transaction for cash; and
(d) The Plan pays no commissions, costs, nor other expenses in
connection with the sale.
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 March 13,
2008 at 73 FR 13587.
Notice to Interested Persons: The applicant was unable to notify
interested persons within the time frame specified in the Notice.
However, the applicant stated that interested persons were subsequently
notified by May 30, 2008, in the manner and time frame re-negotiated
with the Department. The statement accompanying the Notice informed
interested persons that they had 30 days to comment to the Department.
No written comments were received by the Department.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 693-8557. (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
[Prohibited Transaction Exemption 2008-10; Exemption Application No. D-
11435]
Exemption
1. Definitions
(a) For purposes of this exemption, the term ``Merrill Lynch/
BlackRock Related Entity or Entities'' includes all entities listed in
Section 1(a)(1), (a)(2) and (a)(3):
(1) Merrill Lynch & Co., Inc. (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) The term ``Merrill Lynch Related Entity'' or ``Merrill Lynch
Related Entities'' means ML&Co. and any person directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with ML&Co.
(c) The term ``BlackRock Related Entity'' or ``BlackRock Related
Entities'' means BlackRock and any person directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with BlackRock.
(d) For purposes of sections (a-c), 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) below 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) below 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 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
[[Page 55528]]
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 Underwriters
(Modeled After PTE 75-1, Part III)
The restrictions of section 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 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.
4. Exemptions From Prohibitions Respecting Certain Classes of
Transactions Involving Employee Benefit Plans and Market-Makers
(Modeled After PTE 75-1, Part IV)
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 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
[[Page 55529]]
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 paragraph (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 (Modeled After PTE
77-3)
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, which is
a Merrill Lynch/BlackRock Related Entity, employees of any other
Merrill Lynch/BlackRock Related Entity, 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 of such
investment company, provided 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, affiliated person or Merrill Lynch/BlackRock Related
Entity or Entities. 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, the principal underwriter for the investment
company, or any other Merrill Lynch/BlackRock Related Entity 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 (Modeled After PTE 77-4)
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
and a Merrill Lynch/BlackRock Related Entity 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
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
[[Page 55530]]
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 other
Merrill Lynch/BlackRock Related Entity, 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 Merrill Lynch/BlackRock Related
Entity if:
(1) Such second fiduciary directly or indirectly controls, is
controlled by, or is under common control with the fiduciary/investment
adviser or any Merrill Lynch/BlackRock Related Entity;
(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 Merrill Lynch/BlackRock Related Entity; 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 Merrill Lynch/BlackRock Related
Entity 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)(2) 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
(Modeled After PTE 79-13)
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 in 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, which is a Merrill
Lynch/BlackRock Related Entity, employees of any other Merrill Lynch/
BlackRock Related Entity, 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 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, other Merrill
Lynch/BlackRock Related Entity 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
investment adviser, any Merrill Lynch/BlackRock Related Entity or
affiliated person; and
(c) All other dealings between the plan and such investment
company, the investment adviser, any Merrill Lynch/BlackRock Related
Entity or affiliated person are on a basis no less favorable to the
plan than such dealings are with other shareholders of the investment
company.
8. Exemption for Securities Transactions Involving Employee Benefit
Plans and Broker-Dealers (Modeled After PTE 86-128)
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.
[[Page 55531]]
(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 such
person 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 overhead
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'' 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,\1\
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.
---------------------------------------------------------------------------
\1\ 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 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
[[Page 55532]]
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, 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
transactions 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 Merrill Lynch/BlackRock Related Entity or Entities serving as
trustee (other than a nondiscretionary trustee) may only 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
[[Page 55533]]
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 Merrill Lynch/BlackRock Related Entity or Entities serving
as 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 such trustee;
(2) The aggregate brokerage commissions, expressed in dollars, paid
by the plan to brokerage firms not affiliated with such trustee;
(3) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms affiliated with such
trustee; and
(4) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms not affiliated with such
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 and any other Merrill Lynch/
BlackRock Related Entity or Entities:
(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 who 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 reasonably 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 plan whose assets are proposed to be invested in
the pooled fund subsequent to the implementation of the arrangement and
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 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
[[Page 55534]]
(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 (Modeled After PTE 2002-12)
Section I. 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 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
[[Page 55535]]
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) \2\ 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--
---------------------------------------------------------------------------
\2\ 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:
(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
[[Page 55536]]
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 Section, 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 section
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 Section 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 Section, 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:
(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
[[Page 55537]]
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 is:
(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;
(3) Any corporation or partnership of which such Manager is an
officer, director, partner or employee; or
(4) Any Merrill Lynch/BlackRock Related Entity.
(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 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
[[Page 55538]]
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.
DATES: Effective Date: This exemption is effective September 29, 2006
and will expire at such time as ML&Co.'s equity interest in BlackRock
falls below ten percent (10%).
Background
On September 29, 2006, ML&Co. and BlackRock consummated a
transaction (i.e., 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) \3\ 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.
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\3\ 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).
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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 granting 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.
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 May 9, 2008 at 73 FR
26418.
Written Comments and Hearing Requests
The Department received one comment letter with respect to the
Notice of Proposed Exemption (the Notice), which was filed by the
Applicants. The Applicants addressed several points regarding 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 note that the Notice provided for temporary relief
that would expire five years from the date the final exemption is
published in the Federal Register. The Applicants contend that they are
seeking no relief beyond that provided by the Applicable Exemptions,
and that they are not asking that any conditions to relief under the
Applicable Exemptions be liberalized. The Applicants point out that the
Applicable Exemptions need not be renewed every five years, and the
transactions described in the Notice are no more likely to raise self-
dealing concerns than those covered by the Applicable Exemptions. The
Applicants have recommended, as a more appropriate alternative to the
five-year period, that the exemption expire once ML&Co.'s equity
ownership in BlackRock falls below ten percent (10%). The Applicants
believe that once that point is reached, transactions between the
BlackRock Related Entities and the Merrill Lynch Related Entities would
not constitute prohibited acts of self-dealing under the Act, and there
would no longer be a need for individual exemptive relief. While the
Department is not expressing an opinion as to whether ML&Co.'s
ownership of less than 10% of BlackRock would ensure that transactions
that are entered into between the BlackRock Related Entities and the
Merrill Lynch Related Entities would not involve acts of self-dealing
in violation of the Act, the Department has determined to adopt the
Applicants' comment and, accordingly, has amended the Notice such that
the exemption will expire once ML&Co.'s equity ownership in BlackRock
falls below ten percent (10%).
The Applicants also commented with respect to the Notice regarding
Applicable Exemptions PTE 77-3 (Exemption Involving Mutual Fund In-
House Plans) and PTE 79-13 (Exemption Involving Closed-End Investment
Company In-House Plans). The Applicants state that, as drafted, the
portion of the proposed exemption modeled on PTE 77-3 covers employees
of an ``affiliated person'' (as defined in section 2(a)(3) of the
Investment Company Act of 1940) of an 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. The Applicants point out that the portion of the
Notice modeled on PTE 79-13 is similarly drafted.\4\ The Applicants
represent that under section 2(a)(3) of the Investment Company Act of
1940, it is not clear that the BlackRock Related Entities are
affiliates of ML&Co. or the Merrill Lynch Related Entities. The
Applicants conclude that, as drafted, a Plan sponsored by a Merrill
Lynch Related Entity may not be able to use the portion of the proposed
exemption modeled on PTE 77-3 and PTE 79-13 to purchase ``BlackRock''
mutual funds.
---------------------------------------------------------------------------
\4\ According to the Applicants, the investment adviser for a
``BlackRock'' mutual fund will be a BlackRock Related Entity. A
Merrill Lynch Related Entity may not be an affiliated person (as
defined in section 2(a)(3) of the Investment Company Act of 1940) of
a BlackRock Related Entity that is acting as an investment adviser
to a BlackRock mutual fund. Since ML&Co. owns more than 5% of the
outstanding voting securities of BlackRock, ML&Co. would be
considered an ``affiliated person'' of BlackRock within the meaning
of Section 2(a)(3) of the Investment Company Act of 1940. The
Applicants further state that the BlackRock Related Entities are
``affiliated persons'' of BlackRock within the meaning of Section
2(a)(3) of the Investment Company Act, because BlackRock owns more
than 5% of the outstanding voting securities of each of the
BlackRock Related Entities. However, the Applicants point out that
Section 2(a)(3) of the Investment Company Act distinguishes between
affiliates with a parent-subsidiary relationship and affiliates that
would only be affiliates because of a common parent (i.e., sibling
companies). In the latter case, two affiliates of a parent entity
are not necessarily affiliates of each other.
---------------------------------------------------------------------------
The Department agrees with the comment and has modified portions of
the operative language of the exemption as it pertains to the
Applicable Exemptions PTE 77-3 and PTE 79-13.
The Applicants also commented with respect to the Notice regarding
Applicable Exemption PTE 77-4 (Exemption for Certain Transactions
Between Investment Companies and Employee Benefit Plans). The
Applicants state that the first paragraph of the portion of the
proposed exemption modeled on PTE 77-4
[[Page 55539]]
provides ``* * * 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 [emphasis added]* * *'' The
Applicants comment that the language in italics suggests that the
investment adviser to the mutual fund and the fiduciary must be the
same entity. If that were the case, the Applicants point out that a
Merrill Lynch Related Entity that is a fiduciary may not be able to
cause a Plan to invest in a mutual fund that is advised by a BlackRock
Related Entity (or vice versa). The Applicants state that PTE 77-4 is
not so restricted. The investment adviser can be a fiduciary or an
``affiliate'' of a fiduciary. Thus, the Applicants request that the
portion of the exemption modeled on PTE 77-4 be revised to make clear
that if the investment adviser to the mutual fund is a BlackRock
Related Entity, the fiduciary can be either a BlackRock Related Entity
or a Merrill Lynch Related Entity (and vice versa). The Department has
considered the comment and has modified the operative language of the
exemption as it pertains to the Applicable Exemption PTE 77-4.
Further, the Applicants commented with respect to the Notice
regarding Applicable Exemption PTE 86-128 (Exemption for Securities
Transactions Involving Employee Benefit Plans and Broker-Dealers). The
Applicants state that Section IV(b) of the portion of the Notice
modeled on PTE 86-128 provides, ``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'' [emphasis added] meets specific conditions.
The Applicants comment that the language in italics suggests that only
the Merrill Lynch/BlackRock Related Entity that effects or executes the
transaction must meet the specific conditions set forth in Section
IV(b) of this portion of the exemption. If that were the case, the
Applicants indicate that a Merrill Lynch Related Entity could effect or
execute a transaction without complying with the requirements of
Section III of the portion of the Notice modeled on PTE 86-128, where a
BlackRock Related Entity acted as a fiduciary with investment
discretion with respect to plan assets involved in a transaction.
The Applicants then state that in PTE 86-128, Section IV(b)
provides: ``Section III of this exemption does not apply in the case of
an agency cross transaction, provided that the person effecting or
executing the transaction'' meets specific conditions. The Applicants
point out that the definition of ``person'' in PTE 86-128 includes the
person and affiliates of the person, and therefore, Section IV of PTE
86-128 requires that the person effecting or executing the transaction
and its affiliates meet the conditions set forth in Sections IV(b)(1)-
(3) of PTE 86-128. To prevent the Notice from providing relief broader
than that contained in PTE 86-128, the Applicants recommend that the
portion of the Notice modeled on PTE 86-128 should be revised to make
clear that the Merrill Lynch/BlackRock Related Entity or Entities
effecting or executing the transaction and any other Merrill Lynch/
BlackRock Related Entity must meet the conditions set forth in Section
IV(b)(1)-(3).
The Department has considered the comment and has modified the
operative language of the exemption as it pertains to the Applicable
Exemption PTE 86-128.
Additionally, the Applicants commented with respect to the Notice
regarding Applicable Exemption PTE 2002-12 (Exemption for Cross-Trades
of Securities by Index and Model-Driven Funds). The Applicants note
that the term ``Manager'' under the portion of the Notice modeled on
PTE 2002-12 is defined as (i) Banks or trust companies that are
supervised by a state or federal agency, (ii) registered investment
advisers and (iii) their respective ``Affiliates''. Under this
definition, the Applicants explain that where a BlackRock Related
Entity is acting as an investment adviser, the definition of Manager
may not include the Merrill Lynch Entities (and vice versa). If the
definition of ``Manager'' does not include both the Merrill Lynch
Related Entities and the BlackRock Related Entities, the Applicants
indicate that the use of ``Manager'' and ``Manager Plans'' throughout
the portion of the Proposed Exemption modeled on PTE 2002-12 will lead
to unintended consequences, in particular with respect to Sections
II(e), (g), (h) and (m). For example, if a Merrill Lynch Related Entity
is not considered an ``Affiliate'' of an investment adviser that is a
BlackRock Related Entity, the portion of the Notice modeled on PTE
2002-12 could be construed to permit the Merrill Lynch Related Entity
to receive a commission in connection with a cross-trade. Similarly,
the Applicants explain that where a BlackRock Related Entity is a
``Manager'', plans sponsored by a Merrill Lynch Related Entity may be
unable to take advantage of or be restricted by the special rules
governing Manager Plans.
To address this issue, the Applicants propose that the definition
of ``Affiliate'' be revised to specifically include the Merrill Lynch/
BlackRock Related Entities.
The Department has considered the comment and has modified the
operative language of the exemption as it pertains to the Applicable
Exemption PTE 2002-12.
Finally, the Applicants sought to correct certain facts that
appeared in the Notice. For example, the Summary of Facts and
Representations included in the Notice states that ``ML&Co. now owns a
50.3% economic interest in BlackRock.'' The Applicants wish to clarify
that ML&Co.'s ownership interest in BlackRock fluctuates and that the
Stockholders Agreement imposes a 49.8% cap on ML&Co.'s ownership of
BlackRock equity and requires ML&Co. to dispose of BlackRock equity if
it exceeds the specified ownership cap. The Applicants also sought a
number of technical corrections to the Notice which the Department has
taken under consideration or otherwise made.
Accordingly, after giving full consideration to the entire record,
including the Applicants' written comments, the Department has decided
to grant the exemption, as modified herein.
For further information regarding the Applicants' comments and
other matters discussed herein, interested persons are encouraged to
obtain copies of the exemption application file (Exemption Application
No. D-11435) the Department is maintaining in this case. The complete
application file, as well as all supplemental submissions received by
the Department, are made available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, Room
N-1513, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210.
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 May 9, 2008 at 73 FR
26418.
For Further Information Contact: Mrs. Blessed Chuksorji-Keefe,
Office of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor, telephone (202) 693-8540.
(This is not a toll-free number.)
[[Page 55540]]
Pileco, Inc. Employees Profit Sharing Plan (the Plan); Located in
Houston, Texas
[Prohibited Transaction Exemption 2008-11; Exemption Application No. D-
11449]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the proposed sale of certain unimproved real
property (the Property) by the Plan to Pileco, Inc., the sponsor of the
Plan, and 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) At the time of the sale, the Plan receives the greater of
either: (1) $280,000; or (2) the fair market value of the Property as
established by a qualified, independent appraiser in an updated
appraisal of such Property;
(c) The Plan pays no fees, commissions or other expenses associated
with the sale;
(d) The terms and conditions of the sale are at least as favorable
to the Plan as those obtainable in an arm's length transaction with an
unrelated third party; and
(e) The Plan trustee (1) Determines, among other things, whether it
is in the best interest of the Plan to proceed with the sale of the
Property; (2) reviews and approves the methodology used in the
appraisal that is being relied upon; and (3) ensures that such
methodology is applied by the qualified independent appraiser in
determining the fair market value of the Property on the date of the
sale.
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 July 8, 2008 at 73 FR
39175.
For Further Information Contact: Blessed Chuksorji-Keefe of the
Department at (202) 693-8567. (This is not a toll-free number).
Mellon Bank N.A. (Mellon); Located in Pittsburgh, Pennsylvania
[Prohibited Transaction Exemption 2008-12; Exemption Application No. D-
11460]
Exemption
The restrictions of sections 406(a), 406(b)(1) 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) through (E) of the Code,
shall not apply as of January 18, 2008, to the cash sale of certain
medium term notes (the Notes) for $28,584,601.46 by the EB Daily
Liquidity Money Market Fund (the Fund) to The Bank of New York Mellon
Corporation (BNYMC), a party in interest with respect to employee
benefit plans invested in the Fund, provided that the following
conditions are met.
(a) The sale was a one-time transaction for cash payment made on a
delivery versus payment basis in the amount described in paragraph (b);
(b) The Fund received an amount as of the settlement date of the
sale which was equal to the greatest of:
(i) The amortized cost of the Notes as of the date of the sale, if
the Fund has been valued at amortized cost at any time within the
preceding year;
(ii) The price at which the Fund purchased the Notes, if the Fund
is valued at fair market value and the Fund has not been valued at
amortized cost at any time within the preceding year; or
(iii) The fair market value of the Notes as of the date of the
sale, as determined by an independent third party source or independent
appraisal (in each case, including accrued but unpaid interest);
(c) The Fund did not bear any commissions or transaction costs with
respect to the sale;
(d) Mellon, as trustee of the Fund, determined that the sale of the
Notes was appropriate for and in the best interests of the Fund, and
the employee benefit plans invested, directly or indirectly, in the
Fund, at the time of the transaction;
(e) Mellon took all appropriate actions necessary to safeguard the
interests of the Fund, and the employee benefit plans invested in the
Fund, in connection with the transactions;
(f) If the exercise of any of BNYMC's rights, claims or causes of
action in connection with its ownership of the Notes results in BNYMC
recovering from the issuer of the Notes, or any third party, an
aggregate amount that is more than the sum of:
(i) The purchase price paid for the Notes by BNYMC (i.e., $28.5
million); and
(ii) The interest due on the Notes from and after the date BNYMC
purchased the Notes from the Fund, at the rate specified in the Notes,
BNYMC will refund such excess amounts promptly to the Fund (after
deducting all reasonable expenses incurred in connection with the
recovery).
(g) Mellon 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 paragraph (h)(i), to determine whether the
conditions of this exemption have been met, except that--
(i) No party in interest with respect to a plan which engages in
the covered transactions, other than Mellon 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 paragraph (h)(i); and
(ii) A separate prohibited transaction shall not be considered to
have occurred solely because due to circumstances beyond the control of
Mellon or its affiliate, as applicable, such records are lost or
destroyed prior to the end of the six-year period.
(h)(i) Except as provided, below, in paragraph (h)(ii), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to, above, in paragraph (g) are
unconditionally available at their customary location for examination
during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
(B) Any fiduciary of any plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary; or
(C) 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
(D) Any participant or beneficiary of a plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(ii) None of the persons described, above, in paragraph (h)(i)(B)-
(D) shall be authorized to examine trade secrets of Mellon, or
commercial or financial information which is privileged or
confidential; and
(iii) Should Mellon refuse to disclose information on the basis
that such information is exempt from disclosure, Mellon shall, by the
close of the thirtieth (30th) day following the request, provide a
written notice advising that person of the reasons for the refusal and
that the Department may request such information.
[[Page 55541]]
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 July 8, 2008
at 73 FR 39177.
The Department received no substantive written comments with
respect to the Notice. The Department received a clarification from the
Applicant regarding the number of direct investors in the Fund as of
January 17, 2008, as was stated in the Summary of Facts and
Representations and the Notice to Interested Persons sections of the
Notice. The Applicant stated that due to an inadvertent error, its
submission stated that there were 25 direct investors in the fund as of
that date, when in fact there were actually 24.
FOR FURTHER INFORMATION CONTACT: Ms. Karen Lloyd of the Department,
telephone (202) 693-8554. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the 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 describe all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 19th day of September 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-22486 Filed 9-24-08; 8:45 am]
BILLING CODE 4510-29-P
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