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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   [12/23/2008]
[PDF]
FR Doc E8-30511
[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

[[Page 78856]]

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