[Federal Register: December 23, 2008 (Volume 73, Number 247)]
[Notices]
[Page 78846-78856]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23de08-116]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11341]
Notice of Proposed Individual Exemption To Replace Prohibited
Transaction Exemption (PTE) 2000-45, Involving Citigroup Global Markets
Inc. (CGMI), Formerly Salomon Smith Barney Inc. (Salomon Smith Barney),
Located in New York, NY
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption to modify PTE 2000-45.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed exemption which, if
granted, would replace PTE 2000-45 (65 FR 54315, September 7, 2000). On
December 1, 2005, PTE 2000-45 became ineffective due to a material
change in the exemption.
PTE 2000-45 related to the operation of the TRAK Personalized
Investment Advisory Service (the TRAK Program) and the Trust for
Consulting Group Capital Markets Funds (the Trust). If granted, the new
exemption would affect participants and beneficiaries of and
fiduciaries with respect to employee benefit plans (the Plans)
participating in the TRAK Program.
DATES: Effective Dates: If granted, this proposed exemption will be
effective: (1) From December 1, 2005 until March 10, 2006 with respect
to the limited exception described in Section IV; (2) as of December 1,
2005 with respect to the Covered Transactions, the General Conditions
and the Definitions described in Sections I, II and III; and (3) as of
January 1, 2008 with respect to the new fee offset procedure.
DATES: Written comments and requests for a public hearing should be
received by the Department on or before February 23, 2009.
ADDRESSES: All written comments and requests for a public hearing
(preferably, three copies) should be sent to the Office of Exemption
Determinations, Employee Benefits Security Administration, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington DC
20210, Attention: Application No. D-11341. Interested persons are also
invited to submit comments and/or hearing requests to the Department by
facsimile to (202) 219-0204 or by electronic mail to
Vaughan.Anna@dol.gov by the end of the scheduled comment period. The
application pertaining to the proposed exemption and the comments
received will be available for public inspection in the Public
Disclosure Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Mrs. Anna Vaughan, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8565. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption that would replace PTE
2000-45. PTE 2000-45 provided an exemption from certain prohibited
transaction restrictions of section 406(a) of the Employee Retirement
Income Security Act of 1974 (the Act or ERISA) and from the sanctions
resulting from the application of section 4975 of the Internal Revenue
Code of 1986 (the Code), as amended, by reason of section 4975(c)(1)(A)
through (D) of the Code, for the purchase or redemption of shares in
the Trust by an employee benefit plan, an individual retirement
account, a retirement plan for a self-employed individual, or an
individual account pension plan that is subject to the provisions of
Title I of the Act and established under section 403(b) of the Code
(the Section 403(b) Plan; collectively, the Plans) in connection with
such Plans' participation in the TRAK Program.
PTE 2000-45 also provided exemptive relief from the restrictions of
section 406(b) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(E) and (F) of the Code, with respect to the provision, by
the Consulting Group of Salomon Smith Barney (the Consulting Group), of
(1) investment advisory services or (2) an automatic reallocation
option to an independent fiduciary of a participating Plan (the
Independent Plan Fiduciary), which may result in such fiduciary's
selection of a portfolio (the Portfolio) in the TRAK Program for the
investment of Plan assets.\1\
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\1\ PTE 2000-45 superseded PTE 99-15 (64 FR 1648, April 5,
1999), PTE 94-50 (59 FR 32024, June 21, 1994) and PTE 92-77 (57 FR
45833, October 5, 1992).
PTE 99-15 allowed Salomon Smith Barney to create a broader
distribution of TRAK-related products, adopt an automated
recordkeeping reimbursement offset procedure under the TRAK Program,
adopt an automated reallocation option under the TRAK Program that
would reduce the asset allocation fee paid to Salomon Smith Barney
by a Plan investor, and expand the scope of the exemption to include
Section 403(b) Plans. The exemption also replaced references to
Shearson Lehman and Smith Barney in PTEs 92-77 and PTE 94-50, which
it superseded.
PTE 94-50 permitted Smith, Barney Inc. (Smith Barney), Salomon
Smith Barney's predecessor, to add a daily-traded collective
investment fund (the GIC Fund) to the existing Portfolios of mutual
funds (the Funds) comprising the Trust, and to describe the various
entities operating the GIC Fund. PTE 94-50 also replaced references
to Shearson Lehman Brothers, Inc. (Shearson Lehman) with Smith
Barney and amended and replaced PTE 92-77.
Finally, PTE 92-77 permitted Shearson Lehman to make the TRAK
Program available to Plans that acquired shares in the former Trust
for TRAK Investments and allowed the Consulting Group to provide
investment advisory services to an Independent Plan Fiduciary which
might result in such fiduciary's selection of a Portfolio in the
TRAK Program for the investment of Plan assets.
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[[Page 78847]]
As of May 31, 2008, the TRAK Program held assets that were in
excess of $9.4 billion. Of those assets, approximately $5.6 billion
were held in Plan accounts of ERISA-covered plans or individual
retirement accounts. At present, the Trust consists of eleven
Portfolios (CGCM funds) that are managed by the Consulting Group and
advised by one or more unaffiliated sub-advisers (the Sub-Advisers)
selected by the Consulting Group.
PTE 2000-45 required, as did each prior exemption, that any Sub-
Adviser that acted on behalf of the Trust and exercised investment
discretion over a Portfolio be independent of Salomon Smith Barney and
its affiliates to ensure that the Sub-Adviser would not have a
significant role in the decisions made by the Consulting Group, and
that the Consulting Group would not have significant influence in or
exert control over, or have a significant economic interest in the Sub-
Adviser.
In granting PTE 2000-45 to Salomon Smith Barney, the Department
also modified the definition of the term ``affiliate,'' as set forth in
Section II(h) of the General Conditions and Section III(b) of the
Definitions. Section II(h) provides that ``[a]ny Sub-Adviser that acts
for the Trust to exercise investment discretion over a Portfolio will
be independent of Salomon Smith Barney and its affiliates.'' \2\
Section III(b)(3) of the Definitions defines the term ``affiliate'' to
include ``[a]ny corporation or partnership of which Salomon Smith
Barney, or an affiliate described in subparagraph (b)(1), is a 10
percent or more partner or owner.'' Thus under PTE 2000-45, an
``affiliate'' of Salomon Smith Barney would cover only those persons
and entities that had a significant role in the decisions made by, or
which were managed or influenced by, Salomon Smith Barney. An affiliate
would also include any corporation or partnership of which Salomon
Smith Barney or an affiliate was a 10 percent or more partner or owner.
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\2\ Although the term ``independent'' is not defined in PTE
2000-45, the Applicants note that this condition was added to the
original Shearson Lehman exemption request when Shearson Lehman
agreed not to use affiliated Sub-Advisers. As noted in the proposed
exemption to PTE 99-15 (63 FR 60391, November 9, 1998), the term
``independent'' has been construed to mean ``not an affiliate.''
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CGMI (formerly, Salomon Smith Barney) and its predecessor and
related companies (collectively, the Applicants) have requested a
modification of PTE 2000-45. Specifically, the Applicants have
requested that the term ``affiliate,'' as originally set forth in
Section II(h) of the General Conditions and in Section III(b) of the
Definitions of PTE 2000-45, be clarified as it relates to the past
merger (the Merger Transaction) between Citigroup Inc. (Citigroup) and
Legg Mason, Inc. (Legg Mason), a financial services holding company. In
this regard, the Applicants have requested that a limited and temporary
exception to the definition of ``affiliate'' be incorporated in a new
Section IV.
As a result of the Merger Transaction, which is described in detail
below, it is the view of the Department that PTE 2000-45 was no longer
effective for the transactions described therein when Section II(h) of
the General Conditions and Section III(b) of the Definitions were not
met. Therefore, the Department has decided to propose a new exemption
that would replace PTE 2000-45. The new exemption would incorporate by
reference (unless otherwise noted), the facts, representations,
operative language and definitions of PTE 2000-45. To the extent
applicable, the new exemption, if granted, would update the operative
language of PTE 2000-45.
The Department's exemption procedures (the Procedures), which are
codified in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990),
expressly mandate that ``an exemption is effective only under the
conditions set forth in the exemption.'' \3\ To the extent a condition
is not met, the Department has taken the position that the exemption is
null and void. Under such circumstances, the parties must obtain
another individual exemption from the Department.
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\3\ See 29 CFR 2570.49(b).
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If granted, the new exemption would provide retroactive relief,
effective as of December 1, 2005, with respect to the Covered
Transactions, the General Conditions and the Definitions that are set
forth in Sections I, II and III of this proposal. The new exemption
would also provide, in Section IV, limited retroactive relief from
December 1, 2005 until March 10, 2006 for the period during which the
Applicants were in noncompliance. Further, the new exemption would
provide relief for a fee offsetting procedure implemented by the
Applicants on January 1, 2008.
The proposed exemption has been requested in an application filed
on behalf of the Applicants pursuant to section 408(a) of the Act and
section 4975(c)(2) of the Code, and in accordance with the Procedures.
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Accordingly, the proposed exemption is being
issued solely by the Department.
I. The Merger Transaction
The Applicants represent that on December 1, 2005, Citigroup sold
to Legg Mason substantially all of its asset management business in
accordance with the terms of an agreement dated June 23, 2005. Legg
Mason, whose principal executive offices are located in Baltimore,
Maryland, provides asset management, securities brokerage, investment
banking and related financial services to its clients through its
subsidiaries. As of March 31, 2008, Legg Mason's affiliated asset
management operations had aggregate assets under management of
approximately $950 billion.
The assets sold by Citigroup to Legg Mason included Smith Barney
Mutual Funds Management Inc. (now Smith Barney Fund Management LLC) but
excluded the Consulting Group and the TRAK Program. In exchange for its
asset management business, Citigroup received the securities brokerage
and investment banking business of Legg Mason and approximately 4
percent of the voting common stock of Legg Mason (Legg Mason Common
Stock) or 5,395,545 shares. In addition, Citigroup received 13.346632
shares of non-voting, convertible preferred stock of Legg Mason (Legg
Mason Preferred Stock) \4\ which could be converted into approximately
10 percent of Legg Mason Common Stock.\5\ Legg Mason Stock was to be
held by AMAD Holdings, Inc., a subsidiary of Citigroup. Further,
Citigroup received approximately $550 million in the form of a five
year loan
[[Page 78848]]
facility provided by Legg Mason to Citigroup Corporate and Investment
Banking.
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\4\ Legg Mason Common Stock and Legg Mason Preferred Stock are
together referred to as ``Legg Mason Stock.''
\5\ Legg Mason Preferred Stock will only convert after it has
been sold by Citigroup.
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In addition to the above, Citigroup agreed with Legg Mason to sell
Legg Mason Preferred Stock under the terms of an underwritten, broadly-
distributed public offering or, if sold privately, in a manner such
that no person acquired more than 1% of the voting power of Legg Mason.
Moreover, Citigroup was required not to participate in any proxy
contest or other activities concerning the management of Legg Mason.
Finally, Citigroup agreed not to acquire more than 5% of Legg Mason
Common Stock at any time.
Consummation of the Merger Transaction was subject to certain
customary terms and conditions, including: (1) Required regulatory
approvals obtained by Citigroup and Legg Mason;
(2) consent obtained from certain advisory clients of Citigroup
Asset Management (CAM) to continue their advisory relationship with CAM
following the consummation of the Merger Transaction; \6\ and (3) the
conversion of Legg Mason's subsidiary, Legg Mason Trust, fsb, from a
federal thrift charter to a trust company.
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\6\ The Applicant states that CAM was sold to Legg Mason
subsequent to the Merger Transaction.
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II. Subsequent Developments
On March 10, 2006, Citigroup announced that it had priced an
offering of 9,000,000 shares of Legg Mason Common Stock in an
underwritten public offering. The shares consisted of 5,393,545 shares
of Legg Mason Common Stock as well as 3,606,455 shares of Legg Mason
Common Stock, which were issuable upon the conversion and sale of
3.606455 shares of Legg Mason Preferred Stock. These shares had been
received by Citigroup as part of the consideration for the Merger
Transaction described above.
Citigroup also granted the underwriter a customary 15% over-
allotment option to purchase additional shares of Legg Mason Common
Stock. Citigroup Corporate and Investment Banking acted as sole
bookrunner in this transaction. Upon completion of the offering, and
assuming no exercise of the over-allotment option, Citigroup would own
9.740177 shares of Legg Mason Preferred Stock, which would be
convertible upon sale into 9,740,177 shares of Legg Mason Common Stock.
Completion of the offering was subject to market and other conditions.
Currently, Citigroup owns no Legg Mason Common Stock and 8.390177
shares of Legg Mason Preferred Stock that is convertible upon sale into
8,390,177 shares of Legg Mason Common Stock. Such stock continues to be
held by AMAD Holdings, Inc. The Legg Mason Preferred Stock represents a
less than 10% ownership interest in Legg Mason.
III. The Sub-Advisers
Brandywine Asset Management LLC (Brandywine) and Western Asset
Management Company (Western), both of which are investment adviser
subsidiaries of Legg Mason, have served as Sub-Advisers to a portion of
the assets of certain Portfolios of the Trust offered under the TRAK
Program. The Applicants represent that Brandywine had served as a Sub-
Adviser since July 2001, but it was removed from this position on June
17, 2008. Until its removal, Brandywine managed assets in excess of
$300 million for the Consulting Group Capital Markets (CGCM)
International Equity Investments Fund. Western has been a Sub-Adviser
since October 2001, and since June 30, 2008, it has managed
$186,506,248 in assets for CGCM's Core Fixed Income Fund, and
$59,602,052 for the CGCM High Yield Fund.
The Applicants represent that Brandywine and Western have operated
as separate and autonomous companies. Each Sub-Adviser has made its own
decisions regarding the business that it has conducted with CAM. In
particular, Brandywine and Western have entered into a ``Revenue
Sharing Agreement'' with Legg Mason, whereby Legg Mason has received a
specified percentage of Brandywine's and Western's respective gross
revenues on an annual basis. With the remaining revenues, Brandywine
and Western have each developed its own business plan and operating
budget. Both Sub-Advisers have retained complete control over its
investment processes, and have made its own decisions as to what
business to accept from existing and potential clients, and on what
terms.
The Applicants state that these principles have applied to each of
Brandywine's and Western's relationship with the TRAK Program.
Therefore, no changes to these arrangements were anticipated as a
result of the Merger Transaction. Furthermore, the Applicants state
that the Consulting Group has never had any ability to exercise control
or influence over the business of Brandywine or Western. In this
regard, the Consulting Group, in its role as the Investment Manager to
the Trust's Funds, has continued to recommend to the Board of Trustees
of the Trust the selection and retention of Fund Sub-Advisers, but has
not had any control over how any Sub-Adviser, including Brandywine or
Western, would fulfill its obligations to the Funds under the Sub-
Adviser agreements.
Similarly, the Applicants point out that neither Brandywine nor
Western, as separate entities, has had any control over the
recommendations of the Consulting Group, or the decisions made by the
Board of Trustees of the Trust with respect to selection of the Sub-
Advisers or asset allocations. Thus, no special arrangements that would
give either the Consulting Group or Brandywine and Western any ability
to exercise control over each other were possible.
Although Citigroup at no time controlled a greater than 5% voting
interest in Legg Mason, the Applicants explain that an affiliate of
Citigroup temporarily held an aggregate ownership interest in Legg
Mason (i.e., including Legg Mason Stock) of approximately 14%.\7\ As a
result, Legg Mason may have been considered an ``affiliate'' of CGMI
under PTE 2000-45. While the definition of ``affiliate'' in Section
III(b) of the Definitions section of PTE 2000-45 does not include
``affiliates'' of Legg Mason, the Applicants note that it is possible
that Brandywine and Western, as wholly owned subsidiaries of Legg
Mason, may not have been considered ``independent'' of CGMI and its
affiliates for purposes of Section II(h) of the General Conditions of
PTE 2000-45.\8\ Counsel for Citigroup has also confirmed that the
Merger Transaction did not result in Legg Mason being considered an
``affiliate'' of CGMI for purposes of applicable securities laws or an
``affiliated person'' of CGMI for purposes of the Investment Company
Act of 1940.
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\7\ As mentioned above, on March 10, 2006, Citigroup sold its
entire position in Legg Mason Common Stock that was received in
connection with the Merger Transaction, and since then has held a
less than 10% ownership interest in Legg Mason.
\8\ When the term ``affiliate'' was modified in PTE 2000-45, it
was not in the context of and did not address a transaction in which
an affiliate of CGMI would exceed the 10% standard by holding, in
part, Legg Mason Preferred Stock as described above.
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IV. Limited Exception and Rationale
Accordingly, the Applicants request a limited exception to the
definition of ``affiliate'' so that during the three month period
within which Citigroup held a 10% or greater economic ownership
interest in Legg Mason (including Legg Mason Stock), Brandywine and
Western would continue to be considered ``independent'' of CGMI and its
[[Page 78849]]
affiliates. This limited exception has been incorporated herein into a
new Section IV.
Without the requested relief, the Applicants state that the
Consulting Group would have been forced to terminate services received
from Brandywine and Western on or prior to the closing date of the
Merger Transaction. The Applicants request exemptive relief because (1)
forcing the sale of interests held by Plans in Portfolios advised by
Brandywine and Western and precluding Plan investors in the TRAK
Program from making investments in these Portfolios would not have been
in the best interests of the Plans and their participants and
beneficiaries; (2) eliminating Brandywine and Western as Sub-Advisers
would have caused a significant disruption to the TRAK Program and
would not have been in the best interests of the Funds' shareholders,
including Plans; and (3) Brandywine and Western had never exercised
control over the decisions made by the Consulting Group under the TRAK
Program, nor had the Consulting Group ever exercised control over
Brandywine's or Western's business. The Applicants also represent that
Brandywine and Western were retained as Sub-Advisers under the TRAK
Program prior to contemplation of the Merger Transaction and that any
temporary ``affiliation'' that Legg Mason may have had with Citigroup
could not have been anticipated at the time of their retention, or
affected the consideration of whether to retain them. Further, the
Applicants note that the retention of Brandywine and Western as Sub-
Advisers under the TRAK Program was not a condition of, or in any way a
part of, the Merger Transaction.
On the basis of the Applicants' request, the Department has added a
new Section IV to this proposed exemption. Paragraph (a) of Section IV
and the relevant conditions are set forth as follows:
(a) Notwithstanding the condition set forth in Section II(h) of
the General Conditions or the definition of ``affiliate'' set forth
in Section III(b) of the Definitions herein, during the period,
December 1, 2005 through March 10, 2006, within which Citigroup held
a 10 percent or greater economic ownership interest in Legg Mason,
Inc. (Legg Mason) as a result of the merger transaction (the Merger
Transaction) consummated on December 1, 2005 between Citigroup and
Legg Mason, Brandywine Asset Management LLC (Brandywine) and Western
Asset Management Company (Western), both of which are wholly-owned
subsidiaries of Legg Mason, continued to be deemed ``independent''
of Citigroup Global Markets Inc. (CGMI) and its affiliates for
purposes of Section II(h) of the General Conditions and Section
III(b) of the Definitions section, as long as the following
conditions were met:
(1) The Merger Transaction resulted in Citigroup receiving,
among other things, approximately 4 percent of Legg Mason voting
common stock (Legg Mason Common Stock), and non-voting convertible
preferred stock (Legg Mason Preferred Stock) which was convertible
into approximately 10 percent of Legg Mason Common Stock (together,
Legg Mason Stock).
(2) Following the Merger Transaction, Legg Mason Stock was being
held by a subsidiary of Citigroup that was not in the vertical chain
of ownership with CGMI, and CGMI was not controlling or controlled
by, the entity holding Legg Mason Stock.
(3) Legg Mason Preferred Stock was converted into Legg Mason
Common Stock only after it was sold by Citigroup.
(4) Citigroup engaged in efforts to sell Legg Mason Preferred
Stock within a reasonable amount of time pursuant to an underwritten
broadly distributed public offering.
(5) Citigroup reduced its holdings in Legg Mason Stock below 10
percent within three months following the consummation of the Merger
Transaction.
(6) Citigroup did not participate in any proxy contest or other
activities concerning the management of Legg Mason.
(7) Citigroup did not acquire more than 5 percent of Legg Mason
Common Stock at any time.
(8) Brandywine and Western operated as separate and autonomous
business units within Legg Mason.
(9) The Consulting Group had no ability to exercise control or
influence over the business of Brandywine or Western. Similarly,
Brandywine and Western had no ability to exercise control or
influence over the business of the Consulting Group.
(10) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, with respect to each Portfolio for
which Brandywine or Western currently serves as a Sub-Adviser, the
percentage of Portfolio assets allocated for management purposes to
these entities by the Consulting Group was not increased.
(11) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, Brandywine and Western were not
permitted to manage assets for any other Portfolio in the TRAK
Program.
(12) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, the fee rates paid to Brandywine
and Western were not increased.
(13) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, no other affiliates of Legg Mason
were retained to act as Sub-Advisers in the TRAK Program.
(14) The Board of Trustees of the Trust for the Consulting Group
subjected Brandywine and Western to the same review process and
fiduciary requirements as in effect for all other Sub-Advisers, and
to the same performance standards.
V. Revised General Conditions
The proposed exemption incorporates the General Conditions that
were set forth in PTE 2000-45. However, the Department has revised
these General Conditions in the proposal by making the language more
comprehensible and consistent with other recently-granted individual
and class exemptions. In addition, the Department has updated the
General Conditions to include references to ``Citigroup Global Markets
Inc.'' (i.e., CGMI), which was formerly known, until April 7, 2003, as
``Salomon Smith Barney Inc.'' (i.e., ``Salomon Smith Barney'').
Accordingly, Section II of the proposed exemption has been modified as
follows:
Section II. General Conditions
(a) The participation of Plans in the TRAK Program is approved
by an Independent Plan Fiduciary. For purposes of this requirement,
an employee, officer or director of Citigroup Global Markets Inc.
(CGMI) and/or its affiliates covered by an IRA not subject to Title
I of the Act will be considered an Independent Plan Fiduciary with
respect to such IRA.
(b) The total fees paid to the Consulting Group and its
affiliates constitute not more than reasonable compensation.
(c) No Plan pays a fee or commission by reason of the
acquisition or redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares
remain at least as favorable to an investing Plan as those
obtainable in an arm's length transaction with an unrelated party.
(e) The Consulting Group provides written documentation to an
Independent Plan Fiduciary of its recommendations or evaluations
based upon objective criteria.
(f) Any recommendation or evaluation made by the Consulting
Group to an Independent Plan Fiduciary is implemented only at the
express direction of such Independent Plan Fiduciary, provided,
however, that:
(1) If such Independent Plan Fiduciary elects in writing (the
Election), on a form designated by CGMI from time to time for such
purpose, to participate in the Automatic Reallocation Option under
the TRAK Program, the affected Plan or participant account is
automatically reallocated whenever the Consulting Group modifies the
particular asset allocation recommendation which the Independent
Plan Fiduciary has chosen. Such Election continues in effect until
revoked or terminated by the Independent Plan Fiduciary in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time
of a change in the Consulting Group's asset allocation
recommendation, each account based upon the asset allocation model
(the Allocation Model) affected by such change is adjusted on the
business day of the release of the new Allocation Model by the
Consulting Group, except to the extent that market conditions, and
order purchase and redemption procedures, may delay such processing
through a series of purchase and redemption transactions to shift
assets among the affected Portfolios.
[[Page 78850]]
(3) If the change in the Consulting Group's asset allocation
recommendation exceeds an increase or decrease of more than 10
percent in the absolute percentage allocated to any one investment
medium (e.g., a suggested increase in a 15 percent allocation to
greater than 25 percent, or a decrease of such 15 percent allocation
to less than 5 percent), CGMI sends out a written notice (the
Notice) to all Independent Plan Fiduciaries whose current investment
allocation may be affected, describing the proposed reallocation and
the date on which such allocation is to be instituted (the Effective
Date). If the Independent Plan Fiduciary notifies CGMI, in writing,
at any time within the period of 30 calendar days prior to the
proposed Effective Date that such fiduciary does not wish to follow
such revised asset allocation recommendation, the Allocation Model
remains at the current level, or at such other level as the
Independent Plan Fiduciary then expressly designated, in writing. If
the Independent Plan Fiduciary does not affirmatively opt out of the
new Consulting Group recommendation, in writing, prior to the
proposed Effective Date, such new recommendation is automatically
effected by a dollar-for-dollar liquidation and purchase of the
required amounts in the respective account.
(4) An Independent Plan Fiduciary receives a trade confirmation
of each reallocation transaction. In this regard, for all Plan
investors other than Section 404(c) Plan accounts (i.e., 401(k) Plan
accounts), CGMI mails trade confirmations on the next business day
after the reallocation trades are executed. In the case of Section
404(c) Plan participants, notification depends upon the notification
provisions agreed to by the Plan recordkeeper.
(g) The Consulting Group generally gives investment advice in
writing to an Independent Plan Fiduciary with respect to all
available Portfolios. However, in the case of a Plan providing for
participant-directed investments (the Section 404(c) Plan), the
Consulting Group provides investment advice that is limited to the
Portfolios made available under the Plan.
(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to
exercise investment discretion over a Portfolio is independent of
CGMI and its affiliates.
(i) Immediately following the acquisition by a Portfolio of any
securities that are issued by CGMI and/or its affiliates such as
Citigroup common stock (the Citigroup Common Stock), the percentage
of that Portfolio's net assets invested in such securities does not
exceed one percent. However, this percentage limitation may be
exceeded if:
(1) The amount held by a Sub-Adviser in managing a Portfolio is
held in order to replicate an established third-party index (the
Index).
(2) The Index represents the investment performance of a
specific segment of the public market for equity securities in the
United States and/or foreign countries. The organization creating
the Index is:
(i) Engaged in the business of providing financial information;
(ii) A publisher of financial news information; or
(iii) A public stock exchange or association of securities
dealers.
The Index is created and maintained by an organization
independent of CGMI and its affiliates and is a generally-accepted
standardized Index of securities which is not specifically tailored
for use by CGMI and its affiliates.
(3) The acquisition or disposition of Citigroup Common Stock
does not include any agreement, arrangement or understanding
regarding the design or operation of the Portfolio acquiring the
Citigroup Common Stock, which is intended to benefit CGMI or any
party in which CGMI may have an interest.
(4) The Independent Plan Fiduciary authorizes the investment of
a Plan's assets in an Index Fund which purchases and/or holds
Citigroup Common Stock and the Sub-Adviser is responsible for voting
any shares of Citigroup Common Stock that are held by an Index Fund
on any matter in which shareholders of Citigroup Common Stock are
required or permitted to vote.
(j) The quarterly investment advisory fee that is paid by a Plan
to the Consulting Group for investment advisory services rendered to
such Plan is offset by such amount as is necessary to assure that
the Consulting Group retains no more than 20 basis points from any
Portfolio (with the exception of the Government Money Investments
Portfolio and the GIC Fund Portfolio for which the Consulting Group
and the Trust retains no investment management fee) which contains
investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior
to purchasing Trust shares,
(1) Each Plan receives the following written or oral disclosures
from the Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment objectives of the Portfolios comprising the Trust, the
policies employed to achieve these objectives, the corporate
affiliation existing between the Consulting Group, CGMI and its
subsidiaries and the compensation paid to such entities.\9\
---------------------------------------------------------------------------
\9\ The fact that certain transactions and fee arrangements are
the subject of an administrative exemption does not relieve the
Independent Plan Fiduciary from the general fiduciary responsibility
provisions of section 404 of the Act. In this regard, the Department
expects the Independent Plan Fiduciary to consider carefully the
totality of the fees and expenses to be paid by the Plan, including
the fees paid directly to CGMI or to other third parties.
---------------------------------------------------------------------------
(B) Upon written or oral request to CGMI, a Statement of
Additional Information supplementing the Prospectus which describes
the types of securities and other instruments in which the
Portfolios may invest, the investment policies and strategies that
the Portfolios may utilize and certain risks attendant to those
investments, policies and strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group and such Plan which relates to participation in the
TRAK Program and describes the Automatic Reallocation Option.
(D) Upon written request of CGMI, a copy of the respective
investment advisory agreement between the Consulting Group and the
Sub-Advisers.
(E) In the case of Section 404(c) Plan, if required by the
arrangement negotiated between the Consulting Group and the Plan, an
explanation by a CGMI Consultant (the Financial Consultant) to
eligible participants in such Plan, of the services offered under
the TRAK Program and the operation and objectives of the Portfolios.
(F) A copy of the Proposed Exemption and the Final Exemption
pertaining to the exemptive relief described herein.
(2) If accepted as an investor in the TRAK Program, an
Independent Plan Fiduciary of an IRA or Keogh Plan is required to
acknowledge, in writing, prior to purchasing Trust shares that such
fiduciary has received copies of the documents described above in
subparagraph (k)(1) of this section.
(3) With respect to a Section 404(c) Plan, written
acknowledgement of the receipt of such documents is provided by the
Independent Plan Fiduciary (i.e., the Plan administrator, trustee or
named fiduciary, as the recordholder of Trust shares). Such
Independent Plan Fiduciary is required to represent in writing to
CGMI that such fiduciary is (a) independent of CGMI and its
affiliates and (b) knowledgeable with respect to the Plan in
administrative matters and funding matters related thereto, and able
to make an informed decision concerning participation in the TRAK
Program.
(4) With respect to a Plan that is covered under Title I of the
Act, where investment decisions are made by a trustee, investment
manager or a named fiduciary, such Independent Plan Fiduciary is
required to acknowledge, in writing, receipt of such documents and
represent to CGMI that such fiduciary is (a) independent of CGMI and
its affiliates, (b) capable of making an independent decision
regarding the investment of Plan assets and (c) knowledgeable with
respect to the Plan in administrative matters and funding matters
related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each
Plan receives the following written or oral disclosures with respect
to its ongoing participation in the TRAK Program:
(1) The Trust's semi-annual and annual report including a
financial statement for the Trust and investment management fees
paid by each Portfolio.
(2) A written quarterly monitoring statement containing an
analysis and an evaluation of a Plan investor's account to ascertain
whether the Plan's investment objectives have been met and
recommending, if required, changes in Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and a Section 404(c) Plan, a quarterly, detailed
investment performance monitoring report, in writing, provided to an
Independent Plan Fiduciary of such Plan showing Plan level asset
allocations, Plan cash flow analysis and annualized risk adjusted
rates of return for Plan investments. In addition, if required by
such arrangement, Financial Consultants meet periodically with
[[Page 78851]]
Independent Plan Fiduciaries of Section 404(c) Plans to discuss the
report as well as with eligible participants to review their
accounts' performance.
(4) If required by the arrangement negotiated between the
Consulting Group and a Section 404(c) Plan, a quarterly participant
performance monitoring report provided to a Plan participant which
accompanies the participant's benefit statement and describes the
investment performance of the Portfolios, the investment performance
of the participant's individual investment in the TRAK Program, and
give market commentary and toll-free numbers that enable the
participant to obtain more information about the TRAK Program or to
amend his or her investment allocations.
(5) On a quarterly and annual basis, written disclosures to all
Plans of (a) the percentage of each Portfolio's brokerage
commissions that are paid to CGMI and its affiliates and (b) the
average brokerage commission per share paid by each Portfolio to
CGMI and its affiliates, as compared to the average brokerage
commission per share paid by the Trust to brokers other than CGMI
and its affiliates, both expressed as cents per share.
(m)(1) CGMI maintains or causes to be maintained for a period of
(6) six years the records necessary to enable the persons described
in paragraph (m)(2) of this section to determine whether the
applicable conditions of this exemption have been met. Such records
are readily available to assure accessibility by the persons
identified in paragraph (2) of this section.
(2) Notwithstanding any provisions of section 504(a)(2) and (b)
of the Act, the records referred to in paragraph (1) of this section
are unconditionally available at their customary location for
examination during normal business hours by:
(i) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service;
(ii) Any fiduciary of a participating Plan or any duly
authorized employee of such employer;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan,
or any duly authorized representative of such participant or
beneficiary.
(3) A prohibited transaction is not deemed to have occurred if,
due to circumstances beyond the control of CGMI, the records are
lost or destroyed prior to the end of the six-year period, and no
party in interest other than CGMI is subject to the civil penalty
that may be assessed under section 502(i) of the Act or to the taxes
imposed by sections 4975(a) and (b) of the Code if the records are
not maintained or are not available for examination as required by
paragraph (2) of this section.
(4) None of the persons described in subparagraphs (ii)-(iv) of
this section (m)(2) is authorized to examine the trade secrets of
CGMI or commercial or financial information which is privileged or
confidential.
VI. Fee Offset Modification
The Applicants have also requested that the Department include a
new method for computing ``fee offsets'' that are required under the
exemption. Specifically, the Applicants are referring to Section II(j)
of the General Conditions which states:
The quarterly investment advisory fee that is paid by a Plan to
the Consulting Group for investment advisory services rendered to
such Plan will be offset by such amount that is necessary to assure
that the Consulting Group retains no more than 20 basis points from
any Portfolio (with the exception of the Government Money
Investments Portfolio and the GIC Fund Portfolio for which the
Consulting Group and the Trust will retain no investment management
fees) which contains investments attributable to the Plan investor.
According to the Applicants, this condition relates back to PTE 92-
77, the original exemption granted to Shearson Lehman, Citigroup's
predecessor. In PTE 92-77, it was stated that the inside fees retained
by the Consulting Group (i.e., the management fees paid by the
Portfolios), after the payment of management fees to the Portfolio's
Sub-Advisers, would vary from 20 to 30 basis points depending on the
Portfolio. Because the Consulting Group can retain no more than 20
basis points with respect to Plan investments in each Portfolio, it
applies a reduction factor with respect to the advisory fee or
``outside fee'' that it charges directly to Plans. The reduction factor
is 10, 5 or 0 basis points depending on the Portfolio.
The Applicants represent that this system of fee offsets has been
uniformly used since the TRAK Program's inception in accordance with
the terms of the exemption. However, the Applicants explain that, over
time, many of the Portfolios began to retain new Sub-Advisers, some of
which charged higher fees than the Sub-Advisers that were in place when
the original exemption was issued. Because the aggregate management fee
(i.e., the ``inside fee'') paid to both the Consulting Group and the
Sub-Advisers by each Portfolio was not increased, and because the
reduction factors remained the same across the Portfolios, the
Applicants state that the Consulting Group sometimes retained less than
20 basis points.
The Applicants explain that in the course of developing a new
system for computing the reduction factor, the Consulting Group
discovered the computation anomaly in January 2007. Unknown to the
Applicants, this problem has been present since the inception of the
TRAK Program. The Applicants further indicate that the inside fee is
computed daily and paid monthly based on the value of the Portfolio's
average daily net assets. However, the outside fee is computed on a
``snapshot'' basis at the end of each calendar quarter, and is based on
the value of the client's assets on that date. Because the timing and
method for calculating the two fees are different, Plans which change
investments during a quarter could end up with an imprecise offset.
The Applicants also point out that similar anomalies result when
Plan clients invest or redeem assets in the TRAK Program within a
quarter, or even without any action by the Plan or the Consulting Group
by virtue of daily fluctuations in market values among the Portfolios.
In this regard, when a Plan client invests during a quarter or as a
Portfolio's value increases, its total assets at the end of the quarter
may be greater than the average assets during the quarter. Thus, the
Plan would receive a higher than necessary offset. If the Plan is
redeeming assets or as a Portfolio's value decreases, the Plan's total
assets at the end of the quarter may be lower than its average assets
during the quarter. Therefore, the Plan would receive a lower than
necessary offset.
The Applicants believe that they have remained in compliance with
the terms of the original exemption and the various amendments, at all
times. However, in light of the above situation, effective January 1,
2008, the Applicants have recalculated the fee offset formula and
request that the exemption cover the new formula mechanism.
The following definitions are relevant to the new formula:
``CG Fee'' is the inside fee that the Consulting Group retains for
managing each of the Portfolios.
``Maximum CG Fee'' means the lower of 20 basis points (annualized)
or the lowest CG Fee payable on any given day with respect to a
Portfolio (excluding the Government Money Investments Portfolio and the
GIC Fund Portfolio where the Consulting Group retains no fee).
``Reduction Factor'' means the CG Fee minus the Maximum CG Fee.
``Fee Offset Adjustment'' means the Reduction Factor multiplied by
the daily market value of a Plan's assets of a particular Portfolio on
any given day, divided by 365.
According to the Applicants, the Fee Offset Adjustment is being
computed and accumulated on a daily basis. The aggregate offset for
each quarter to be applied against the outside fee is the sum of the
daily fee offsets for that quarter. The adjustment to the outside
[[Page 78852]]
fee is being computed on a daily basis, based on the average daily
market value of the Plan's assets invested in any Portfolio, in the
same way that the inside fee is calculated. The Applicants represent
that this new approach allows the Consulting Group to apply precise
offsets even for Portfolios with multiple Sub-Advisors charging
different fees, where the aggregate inside fee accumulated to Sub-
Advisers can change each day as the relative percentage of assets under
management by each Sub-Adviser changes.
The Applicants state that the fee offset modification ensures that
the Consulting Group always retains a net fee of 20 basis points even
when there are investments, redemptions or drastic market swings during
a quarterly billing cycle. The Applicants also explain that the fee
offset modification ensures proper leveling where sub-advisory fees do
not correspond to the 5 and 10 basis point offers. Furthermore, the
Applicants maintain that the fee offset modification ensures that the
TRAK Program will at all times operate in a manner consistent with the
leveling requirements described in PTE 92-77.
The Department agrees that the Applicant's modifications to the
procedure for calculating the fees that are paid to the Consulting
Group satisfy the requirements of Section II(j) of the proposed
exemption. Therefore, the Department is not providing any exemptive
relief with respect to such revised fee calculations beyond that
provided in the proposed exemption.
VII. Effective Dates
The Applicants request that the limited exception described above
be effective from December 1, 2005, the closing date of the Merger
Transaction, until March 10, 2006, when Legg Mason Stock held by
Citigroup represented a less than 10% ownership interest in Legg Mason.
Because the Department has determined that PTE 2000-45 was no longer
effective as a result of the Merger Transaction, the proposed new
exemption will be effective as of December 1, 2005, and will include
limited relief from the definition of affiliate for the period from
December 1, 2005, through March 10, 2006. The proposed new exemption
will also include relief for the fee offset procedure which was
implemented by CGMI as of January 1, 2008. Thus, Section V of the
proposed exemption reads as follows:
SECTION V. EFFECTIVE DATES
If granted, this proposed exemption will be effective: (1)
December 1, 2005 until March 10, 2006 with respect to the limited
exception described in Section IV; (2) December 1, 2005 with respect
to the Covered Transactions, the General Conditions and the
Definitions that are described in Sections I, II and III,
respectively; and (3) January 1, 2008 with respect to the new fee
offset procedure.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations
contained in the application for exemption are true and complete and
accurately describe all material terms of the Covered Transactions.
This exemption is available to each specific party to whom the
exemption grants relief, provided such party satisfies the terms and
conditions of the exemption.
Notice to Interested Persons
Notice of the proposed exemption will be mailed by first class mail
to the Independent Plan Fiduciary of each Plan currently participating
in the TRAK Program, or, in the case of a Section 404(c) Plan, to the
recordholder of the Trust shares. Such notice will be given within 30
days of the publication of the notice of pendency in the Federal
Register. The notice will contain a copy of the notice of proposed
exemption, as published in the Federal Register, and a supplemental
statement, as required pursuant to 29 CFR 2570.43(b)(2). The
supplemental statement will inform interested persons of their right to
comment on and/or to request a hearing with respect to the pending
exemption. Written comments and hearing requests are due within 60 days
of the publication of the proposed exemption in the Federal Register.
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 section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
persons from certain other provisions of the Act and the Code,
including any prohibited transaction provisions of the Act and the Code
to which the exemption does not apply and the general fiduciary
responsibility provisions of section 404 of the Act, which require,
among other things, a fiduciary to discharge his or her duties
respecting the plan solely in the interest of the participants and
beneficiaries of the plan and in a prudent fashion in accordance with
section 404(a)(1)(B) of the Act; 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) The proposed exemption, if granted, will extend to transactions
prohibited under section 406(b)(3) of the Act and section 4975(c)(1)(F)
of the Code;
(3) Before an exemption can be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the plan
and of its participants and beneficiaries and protective of the rights
of participants and beneficiaries of the plan;
(4) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(5) This proposed exemption, if granted, is subject to the express
condition that the facts and representations set forth in the notice of
proposed exemption accurately describe, where relevant, the material
terms of the transactions that will be consummated if this exemption is
granted.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemption to the address above,
within the time frame set forth above, after the publication of this
proposed exemption in the Federal Register. All comments will be made a
part of the record. Comments received will be available for public
inspection with the referenced applications at the address set forth
above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
exemption under the authority of section 408(a) of the Employee
Retirement Income Security Act of 1974 (the Act) and section 4975(c)(2)
of the Internal Revenue Code of 1986 (the Code) and in accordance with
the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
August 10, 1990).
Section I. Covered Transactions
A. If the exemption is granted, the restrictions of section 406(a)
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 (D) of the
Code, shall not apply,
[[Page 78853]]
effective December 2005, to the purchase or redemption of shares by an
employee benefit plan, an individual retirement account (an IRA), a
retirement plan for self-employed individuals (a Keogh Plan), or an
individual account pension plan that is subject to the provisions of
Title I of the Act and established under section 403(b) of the Code
(the Section 403(b) Plan) (collectively, the Plans) in the Trust for
Consulting Group Capital Market Funds (the Trust), established by
Citigroup, Inc. (Citigroup), in connection with such Plans'
participation in the TRAK Personalized Investment Advisory Service (the
TRAK Program).
B. If the exemption is granted, the restrictions of section 406(b)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(E) and (F) of the
Code, shall not apply, effective December 1, 2005, with respect to the
provision, by Citigroup's Consulting Group (the Consulting Group), of
(1) investment advisory services or (2) an automatic reallocation
option (the Automatic Reallocation Option) to an independent fiduciary
of a participating Plan (the Independent Plan Fiduciary), which may
result in such fiduciary's selection of a portfolio (the Portfolio) in
the TRAK Program for the investment of Plan assets.
The proposed exemption is subject to the following conditions that
are set forth below in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program is approved by
an Independent Plan Fiduciary. For purposes of this requirement, an
employee, officer or director of Citigroup Global Markets Inc. (CGMI)
and/or its affiliates covered by an IRA not subject to Title I of the
Act will be considered an Independent Plan Fiduciary with respect to
such IRA.
(b) The total fees paid to the Consulting Group and its affiliates
constitute not more than reasonable compensation.
(c) No Plan pays a fee or commission by reason of the acquisition
or redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares remain
at least as favorable to an investing Plan as those obtainable in an
arm's length transaction with an unrelated party.
(e) The Consulting Group provides written documentation to an
Independent Plan Fiduciary of its recommendations or evaluations based
upon objective criteria.
(f) Any recommendation or evaluation made by the Consulting Group
to an Independent Plan Fiduciary is implemented only at the express
direction of such Independent Plan Fiduciary, provided, however, that:
(1) If such Independent Plan Fiduciary elects in writing (the
Election), on a form designated by CGMI from time to time for such
purpose, to participate in the Automatic Reallocation Option under the
TRAK Program, the affected Plan or participant account is automatically
reallocated whenever the Consulting Group modifies the particular asset
allocation recommendation which the Independent Plan Fiduciary has
chosen. Such Election continues in effect until revoked or terminated
by the Independent Plan Fiduciary in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time of
a change in the Consulting Group's asset allocation recommendation,
each account based upon the asset allocation model (the Allocation
Model) affected by such change is adjusted on the business day of the
release of the new Allocation Model by the Consulting Group, except to
the extent that market conditions, and order purchase and redemption
procedures, may delay such processing through a series of purchase and
redemption transactions to shift assets among the affected Portfolios.
(3) If the change in the Consulting Group's asset allocation
recommendation exceeds an increase or decrease of more than 10 percent
in the absolute percentage allocated to any one investment medium
(e.g., a suggested increase in a 15 percent allocation to greater than
25 percent, or a decrease of such 15 percent allocation to less than 5
percent), CGMI sends out a written notice (the Notice) to all
Independent Plan Fiduciaries whose current investment allocation may be
affected, describing the proposed reallocation and the date on which
such allocation is to be instituted (the Effective Date). If the
Independent Plan Fiduciary notifies CGMI, in writing, at any time
within the period of 30 calendar days prior to the proposed Effective
Date that such fiduciary does not wish to follow such revised asset
allocation recommendation, the Allocation Model remains at the current
level, or at such other level as the Independent Plan Fiduciary then
expressly designated, in writing. If the Independent Plan Fiduciary
does not affirmatively opt out of the new Consulting Group
recommendation, in writing, prior to the proposed Effective Date, such
new recommendation is automatically effected by a dollar-for-dollar
liquidation and purchase of the required amounts in the respective
account.
(4) An Independent Plan Fiduciary receives a trade confirmation of
each reallocation transaction. In this regard, for all Plan investors
other than Section 404(c) Plan accounts (i.e., 401(k) Plan accounts),
CGMI mails trade confirmations on the next business day after the
reallocation trades are executed. In the case of Section 404(c) Plan
participants, notification depends upon the notification provisions
agreed to by the Plan recordkeeper.
(g) The Consulting Group generally gives investment advice in
writing to an Independent Plan Fiduciary with respect to all available
Portfolios. However, in the case of a Plan providing for participant-
directed investments (the Section 404(c) Plan), the Consulting Group
provides investment advice that is limited to the Portfolios made
available under the Plan.
(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to
exercise investment discretion over a Portfolio is independent of CGMI
and its affiliates.
(i) Immediately following the acquisition by a Portfolio of any
securities that are issued by CGMI and/or its affiliates such as
Citigroup common stock (the Citigroup Common Stock), the percentage of
that Portfolio's net assets invested in such securities does not exceed
one percent. However, this percentage limitation may be exceeded if:
(1) The amount held by a Sub-Adviser in managing a Portfolio is
held in order to replicate an established third-party index (the
Index).
(2) The Index represents the investment performance of a specific
segment of the public market for equity securities in the United States
and/or foreign countries. The organization creating the Index is:
(i) Engaged in the business of providing financial information;
(ii) A publisher of financial news information; or
(iii) A public stock exchange or association of securities dealers.
The Index is created and maintained by an organization independent
of CGMI and its affiliates and is a generally-accepted standardized
Index of securities which is not specifically tailored for use by CGMI
and its affiliates.
(3) The acquisition or disposition of Citigroup Common Stock does
not include any agreement, arrangement or understanding regarding the
design or operation of the Portfolio acquiring the Citigroup Common
Stock, which is intended to benefit CGMI or any party in which CGMI may
have an interest.
[[Page 78854]]
(4) The Independent Plan Fiduciary authorizes the investment of a
Plan's assets in an Index Fund which purchases and/or holds Citigroup
Common Stock and the Sub-Adviser is responsible for voting any shares
of Citigroup Common Stock that are held by an Index Fund on any matter
in which shareholders of Citigroup Common Stock are required or
permitted to vote.
(j) The quarterly investment advisory fee that is paid by a Plan to
the Consulting Group for investment advisory services rendered to such
Plan is offset by such amount as is necessary to assure that the
Consulting Group retains no more than 20 basis points from any
Portfolio (with the exception of the Government Money Investments
Portfolio and the GIC Fund Portfolio for which the Consulting Group and
the Trust retains no investment management fee) which contains
investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to
purchasing Trust shares,
(1) Each Plan receives the following written or oral disclosures
from the Consulting Group:
(A) A copy of the Prospectus for the Trust discussing the
investment objectives of the Portfolios comprising the Trust, the
policies employed to achieve these objectives, the corporate
affiliation existing between the Consulting Group, CGMI and its
subsidiaries and the compensation paid to such entities.\10\
---------------------------------------------------------------------------
\10\ The fact that certain transactions and fee arrangements are
the subject of an administrative exemption does not relieve the
Independent Plan Fiduciary from the general fiduciary responsibility
provisions of section 404 of the Act. In this regard, the Department
expects the Independent Plan Fiduciary to consider carefully the
totality of the fees and expenses to be paid by the Plan, including
the fees paid directly to CGMI or to other third parties.
---------------------------------------------------------------------------
(B) Upon written or oral request to CGMI, a Statement of Additional
Information supplementing the Prospectus which describes the types of
securities and other instruments in which the Portfolios may invest,
the investment policies and strategies that the Portfolios may utilize
and certain risks attendant to those investments, policies and
strategies.
(C) A copy of the investment advisory agreement between the
Consulting Group and such Plan which relates to participation in the
TRAK Program and describes the Automatic Reallocation Option.
(D) Upon written request of CGMI, a copy of the respective
investment advisory agreement between the Consulting Group and the Sub-
Advisers.
(E) In the case of Section 404(c) Plan, if required by the
arrangement negotiated between the Consulting Group and the Plan, an
explanation by a CGMI Consultant (the Financial Consultant) to eligible
participants in such Plan, of the services offered under the TRAK
Program and the operation and objectives of the Portfolios.
(F) A copy of the Proposed Exemption and the Final Exemption
pertaining to the exemptive relief described herein.
(2) If accepted as an investor in the TRAK Program, an Independent
Plan Fiduciary of an IRA or Keogh Plan is required to acknowledge, in
writing, prior to purchasing Trust shares that such fiduciary has
received copies of the documents described above in subparagraph (k)(1)
of this section.
(3) With respect to a Section 404(c) Plan, written acknowledgement
of the receipt of such documents is provided by the Independent Plan
Fiduciary (i.e., the Plan administrator, trustee or named fiduciary, as
the recordholder of Trust shares). Such Independent Plan Fiduciary is
required to represent in writing to CGMI that such fiduciary is (a)
independent of CGMI and its affiliates and (b) knowledgeable with
respect to the Plan in administrative matters and funding matters
related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the
Act, where investment decisions are made by a trustee, investment
manager or a named fiduciary, such Independent Plan Fiduciary is
required to acknowledge, in writing, receipt of such documents and
represent to CGMI that such fiduciary is (a) independent of CGMI and
its affiliates, (b) capable of making an independent decision regarding
the investment of Plan assets and (c) knowledgeable with respect to the
Plan in administrative matters and funding matters related thereto, and
able to make an informed decision concerning participation in the TRAK
Program.
(l) Subsequent to its participation in the TRAK Program, each Plan
receives the following written or oral disclosures with respect to its
ongoing participation in the TRAK Program:
(1) The Trust's semi-annual and annual report including a financial
statement for the Trust and investment management fees paid by each
Portfolio.
(2) A written quarterly monitoring statement containing an analysis
and an evaluation of a Plan investor's account to ascertain whether the
Plan's investment objectives have been met and recommending, if
required, changes in Portfolio allocations.
(3) If required by the arrangement negotiated between the
Consulting Group and a Section 404(c) Plan, a quarterly, detailed
investment performance monitoring report, in writing, provided to an
Independent Plan Fiduciary of such Plan showing Plan level asset
allocations, Plan cash flow analysis and annualized risk adjusted rates
of return for Plan investments. In addition, if required by such
arrangement, Financial Consultants meet periodically with Independent
Plan Fiduciaries of Section 404(c) Plans to discuss the report as well
as with eligible participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the
Consulting Group and a Section 404(c) Plan, a quarterly participant
performance monitoring report provided to a Plan participant which
accompanies the participant's benefit statement and describes the
investment performance of the Portfolios, the investment performance of
the participant's individual investment in the TRAK Program, and give
market commentary and toll-free numbers that enable the participant to
obtain more information about the TRAK Program or to amend his or her
investment allocations.
(5) On a quarterly and annual basis, written disclosures to all
Plans of (a) the percentage of each Portfolio's brokerage commissions
that are paid to CGMI and its affiliates and (b) the average brokerage
commission per share paid by each Portfolio to CGMI and its affiliates,
as compared to the average brokerage commission per share paid by the
Trust to brokers other than CGMI and its affiliates, both expressed as
cents per share.
(m)(1) CGMI maintains or causes to be maintained for a period of
(6) six years the records necessary to enable the persons described in
paragraph (m)(2) of this section to determine whether the applicable
conditions of this exemption have been met. Such records are readily
available to assure accessibility by the persons identified in
paragraph (2) of this section.
(2) Notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in paragraph (1) of this section are
unconditionally available at their customary location for examination
during normal business hours by:
(i) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service;
[[Page 78855]]
(ii) Any fiduciary of a participating Plan or any duly authorized
employee of such employer;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(3) A prohibited transaction is not deemed to have occurred if, due
to circumstances beyond the control of CGMI, the records are lost or
destroyed prior to the end of the six-year period, and no party in
interest other than CGMI is 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 (2) of
this section.
(4) None of the persons described in subparagraphs (ii)-(iv) of
this section (m)(2) is authorized to examine the trade secrets of CGMI
or commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this proposed exemption:
(a) The term ``CGMI'' means Citigroup Global Markets Inc. and any
affiliate of Citigroup Global Markets Inc., as defined in paragraph (b)
of this Section III.
(b) An ``affiliate'' of CGMI includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with CGMI. (For purposes of this subparagraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual);
(2) Any individual who is an officer (as defined in Section III(d)
hereof), director or partner in CGMI or a person described in
subparagraph (b)(1);
(3) Any corporation or partnership of which CGMI, or an affiliate
described in subparagraph (b)(1), is a 10 percent or more partner or
owner; and
(4) Any corporation or partnership of which any individual which is
an officer or director of CGMI is a 10 percent or more partner or
owner.
(c) An ``Independent Plan Fiduciary'' is a Plan fiduciary which is
independent of CGMI and its affiliates and is either:
(1) A Plan administrator, sponsor, trustee or named fiduciary, as
the recordholder of Trust shares under a Section 404(c) Plan;
(2) A participant in a Keogh Plan;
(3) An individual covered under (i) a self-directed IRA or (ii) a
Section 403(b) Plan, which invests in Trust shares;
(4) A trustee, investment manager or named fiduciary responsible
for investment decisions in the case of a Title I Plan that does not
permit individual direction as contemplated by Section 404(c) of the
Act; or
(5) A participant in a Plan, such as a Section 404(c) Plan, who is
permitted under the terms of such Plan to direct, and who elects to
direct, the investment of assets of his or her account in such Plan.
(d) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer who performs a
policymaking function for the entity.
Section IV. Limited Exception
(a) Notwithstanding the condition set forth in Section II(h) of the
General Conditions or the definition of ``affiliate'' set forth in
Section III(b) of the Definitions herein, during the period, December
1, 2005 until March 10, 2006, when Citigroup Inc. (Citigroup) held a 10
percent or greater economic ownership interest in Legg Mason, Inc.
(Legg Mason) as a result of the merger transaction (Merger Transaction)
consummated on December 1, 2005, between Citigroup and Legg Mason,
Brandywine Asset Management LLC (Brandywine) and Western Asset
Management Company (Western), both of which are wholly owned
subsidiaries of Legg Mason, continued to be deemed ``independent'' of
Citigroup Global Markets Inc. (CGMI) and its affiliates for purposes of
Section II(h) of the General Conditions and Section III(b) of the
Definitions, as long as the following conditions were met:
(1) The Merger Transaction resulted in Citigroup receiving, among
other things, approximately 4 percent of the Legg Mason voting common
stock (Legg Mason Common Stock), and non-voting convertible preferred
stock (Legg Mason Preferred Stock) which was convertible into
approximately 10 percent of Legg Mason Common Stock (together, Legg
Mason Stock).
(2) Following the Merger Transaction, Legg Mason Stock was being
held by a subsidiary of Citigroup that is not in the vertical chain of
ownership with CGMI, and CGMI was not controlling or controlled by the
entity holding Legg Mason Stock.
(3) Legg Mason Preferred Stock was converted into Legg Mason Common
Stock only after it was sold by Citigroup.
(4) Citigroup engaged in efforts to sell Legg Mason Preferred Stock
within a reasonable amount of time pursuant to an underwritten broadly
distributed public offering.
(5) Citigroup reduced its holdings in Legg Mason Stock below 10
percent within three months following the consummation of the Merger
Transaction.
(6) Citigroup did not participate in any proxy contest or other
activities concerning the management of Legg Mason.
(7) Citigroup did not acquire more than 5 percent of Legg Mason
Common Stock at any time.
(8) Brandywine and Western operated as separate and autonomous
business units within Legg Mason.
(9) The Consulting Group had no ability to exercise control or
influence over the business of Brandywine or Western. Similarly,
Brandywine and Western had no ability to exercise control or influence
over the business of the Consulting Group.
(10) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, with respect to each Portfolio for
which Brandywine or Western currently serves as a Sub-Adviser, the
percentage of Portfolio assets allocated for management purposes to
these entities by the Consulting Group was not increased.
(11) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, Brandywine and Western were not
permitted to manage assets for any other Portfolio in the TRAK Program.
(12) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, the fee rates paid to Brandywine and
Western were not increased.
(13) For so long as Citigroup's ownership interest in Legg Mason
remained greater than 10 percent, no other affiliates of Legg Mason
were retained to act as Sub-Advisers in the TRAK Program.
(14) The Board of Trustees of the Trust for the Consulting Group
subjected Brandywine and Western to the same review process and
fiduciary requirements as in effect for all other Sub-Advisers, and to
the same performance standards.
Section V. Effective Dates
If granted, this proposed exemption will be effective: (1) December
1, 2005 until March 10, 2006 with respect to the limited exception
described in Section IV; (2) as of December 1, 2005 with respect to the
Covered Transactions, the
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General Conditions and the Definitions that are described in Sections
I, II and III; and (3) as of January 1, 2008 with respect to the new
fee offset procedure.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations contained
in the application for exemption are true and complete and accurately
describe all material terms of the Covered Transactions. This exemption
is available to each specific party to whom the exemption grants
relief, provided such party satisfies the terms and conditions of the
exemption.
For a more complete statement of the facts and representations
supporting the Department's decision to grant PTE 92-77, PTE 94-50, PTE
99-15 and PTE 2000-45, refer to the proposed exemptions and the grant
notices which are cited above.
Signed at Washington, DC, this 18th day of December, 2008.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-30511 Filed 12-22-08; 8:45 am]
BILLING CODE 4510-29-P