[Federal Register: March 26, 2009 (Volume 74, Number 57)]
[Notices]
[Page 13242-13261]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr09-106]
[[Page 13242]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Nos. and Proposed Exemptions; D-11397, PNC Financial
Services Group, Inc. (PNC Financial); D-11552, Barclays Bank PLC and
Barclays Capital Inc. (Collectively, Barclays or the Applicants; D-
11536 Through D-11550, Individual Retirement Accounts (the IRAs) for
Ralph Hartwell, Harold Latin, Kenlon Johnson, Carol Johnson, Shanon
Taylor, Michael Ball, Dianne Barkas, Roy Barkas, Harry DeWall, Alice
Pike, Steven Larsen, C. Timothy Hopkins, Wayne Meuleman, Robert L.
Miller, and Richard T. Scott (Collectively, the Participants), et al.]
Notice of Proposed Exemptions
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) the name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ----, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
``moffitt.betty@dol.gov'', or by FAX to (202) 219-0204 by the end of
the scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
PNC Financial Services Group, Inc. (PNC Financial) Located in
Pittsburgh, Pennsylvania [Application No. D-11397]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990):
Section I--Exemption for Receipt of Fees
In connection with the investment in an open-end investment company
(a Fund or Funds), as defined, below, in Section IV(e), by certain
employee benefit plans (Client Plan or Client Plans) for which PNC, as
defined, below, in Section IV(a), serves as a fiduciary and is a party
in interest with respect to such Client Plan(s), if the exemption is
granted, the restrictions of sections 406(a) and 406(b) of the Act and
the sanctions resulting from the application of section 4975 of the
Code, by reason of sections 4975(c)(1)(A) through (F) \1\ of the Code,
shall not apply, effective September 29, 2006, to:
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\1\ For purposes of this exemption reference to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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(a) The receipt of fees by PNC from a Fund where BlackRock, as
defined, below, in Section IV(b), acts as the investment adviser for
such Fund, and the receipt of fees by BlackRock for the provision of
investment advisory services, or similar services, to such Fund;
(b) the receipt of fees by PNC from a Fund for providing certain
service(s) (Secondary Service(s)), as defined, below, in Section IV(i),
to such Fund; and
(c) the receipt of fees by PNC from BlackRock in connection with
administrative service(s) (Mutual Fund Administration Service(s)), as
defined, below, in Section IV(l), provided to a Fund in which a Client
Plan invests; provided that the conditions, as set forth in Section II
and Section III, below, were satisfied, as of the effective date of
this exemption and thereafter.
Section II--Specific Conditions
(a) PNC, serving as a fiduciary for a Client Plan, satisfies any
one (but not all) of the following:
(1) A Client Plan invested in a Fund does not pay any plan-level
investment management fee, investment advisory fee, or similar fee
(Plan-Level Fee(s)) to PNC with respect to any of the assets of such
Client Plan which are invested in shares of such Fund for the entire
period of such investment (the Offset Fee Method). This condition does
not preclude the payment of investment advisory fees or similar fees
(Fund-Level Fee(s)) by a Fund to BlackRock under the terms of an
investment advisory agreement adopted in accordance with section 15 of
the Investment Company Act of 1940 (the Investment Company Act);
(2) A Client Plan invested in a Fund pays an investment management
fee or similar fee based on total assets of such Client Plan from which
a credit has been subtracted representing such Client Plan's pro rata
share of
[[Page 13243]]
investment advisory fees or similar fees paid by such Fund to BlackRock
(the Subtraction Fee Method). If, during any fee period for which a
Client Plan has prepaid its investment management or similar fee, such
Client Plan purchases shares of such Fund, the requirement of this
Section II(a)(2) shall be deemed met with respect to such prepaid fee
if, by a method reasonably designed to accomplish the same, the amount
of the prepaid fee that constitutes the fee with respect to the assets
of such Client Plan invested in shares of such Fund: (i) Is anticipated
and subtracted from the prepaid fee at the time of payment of such fee,
(ii) is returned to such Client Plan no later than during the
immediately following fee period, or (iii) is offset against the
prepaid fee for the immediately following fee period or for the fee
period immediately following thereafter. For purposes of this Section
II(a)(2), a fee shall be deemed to be prepaid for any fee period, if
the amount of such fee is calculated as of a date not later than the
first day of such period; or
(3) A Client Plan invested in a Fund receives a ``a credit'' \2\
(the Credit Fee Method) of such Client Plan's proportionate share of
all fees charged to such Fund by BlackRock for investment advisory
services or similar services for a particular month: (1) Effective for
the period, September 29, 2006, through December 31, 2008, on the
earlier of either: (a) The same day as PNC receives a fee from
BlackRock for Mutual Fund Administration Services provided for that
month to such Fund by PNC, or (b) the fifth business day before the end
of the month following the month in which fees for investment advisory
services, or similar services, accrued, or (2) effective for the period
beginning, January 1, 2009, and continuing thereafter, on a date which
is no later than one business day after BlackRock receives fees from
the Fund for investment advisory services, or similar services,
provided for that month to such Fund by BlackRock. The crediting of all
such fees to such Client Plan by PNC is audited by an independent
accounting firm (the Auditor) on at least an annual basis to verify the
proper crediting of such fees to such Client Plan.
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\2\ PNC Financial represents that it would be accurate to
describe ``the credit'' as a ``credited dollar amount'' to cover
situations in which the credited amount is used to acquire
additional shares of a Fund, rather than being held by a Client Plan
in the form of cash. It is represented that the standard practice is
to reinvest the ``credited dollar amount'' in additional shares of
the same Fund with respect to which the fees were credited.
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(b) The price paid or received by a Client Plan for shares in a
Fund is the net asset value per share, as defined, below, in Section
IV(f), at the time of the transaction, and is the same price which
would have been paid or received for such shares by any other investor
in such Fund at that time;
(c) PNC, including any officer or director of PNC, does not
purchase shares of a Fund from any Client Plan or sell shares of a Fund
to any Client Plan;
(d) A Client Plan does not pay sales commissions in connection with
any purchase or sale of shares of a Fund, and a Client Plan does not
pay redemption fees in connection with any sale of shares to a Fund,
unless (1) such redemption fee is paid only to a Fund, and
(2) The existence of such redemption fee is disclosed in the
prospectus for such Fund in effect both at the time of any purchase of
such shares and at the time of such sale;
(e) The combined total of all fees received by PNC for services
provided by PNC:
(1) To Client Plans, and
(2) To Funds in which Client Plans invest is not in excess of
reasonable compensation within the meaning of section 408(b)(2) of the
Act;
(f) PNC does not receive any fees payable pursuant to Rule 12b-1
under the Investment Company Act in connection with the subject
transactions;
(g) A Client Plan is not an employee benefit plan sponsored or
maintained by PNC;
(h) A second fiduciary (Second Fiduciary), as defined, below, in
Section IV(h), who is acting on behalf of a Client Plan receives, in
advance of any initial investment by a Client Plan in a Fund, full and
detailed written disclosure of information concerning such Fund,
including but not limited to:
(1) A current prospectus for each Fund in which such Client Plan is
considering investing;
(2) A statement describing the fees, including the nature and
extent of any differential between the rates of such fees for:
(i) Any investment advisory or similar services to be paid by such
Fund to BlackRock,
(ii) Any Secondary Services to be paid by such Fund to PNC,
(iii) Any Mutual Fund Administration Services to be paid by
BlackRock to PNC, and
(iv) All other fees to be charged to or paid by a Client Plan and
by such Fund;
(3) The reasons why PNC, acting as fiduciary for such Client Plan,
may consider investment in such Fund to be appropriate for such Client
Plan;
(4) A statement describing whether there are any limitations
applicable to PNC with respect to which assets of a Client Plan that
may be invested in such Fund, and if so, the nature of such
limitations; and
(5) Upon the request of the Second Fiduciary, acting on behalf of a
Client Plan, a copy of the proposed exemption and a copy of the final
exemption, if granted, once such documents are published in the Federal
Register.
(i) On the basis of the information described, above, in Section
II(h), a Second Fiduciary, acting on behalf of a Client Plan,
authorizes in writing: (1) The investment of the assets of such Client
Plan in shares of each particular Fund; and (2) the fees received by
PNC and by BlackRock in connection with services provided by PNC and by
BlackRock to such Fund. Such authorization by a Second Fiduciary must
be consistent with the responsibilities, obligations, and duties
imposed on fiduciaries by Part 4 of Title I of the Act.
(j)(1) All authorizations, described, above, in Section II(i), made
by a Second Fiduciary, regarding: (i) Investments by a Client Plan in a
Fund, (ii) fees paid for investment advisory services or similar
services provided by BlackRock to such Fund, (iii) fees paid for
Secondary Services provided by PNC to such Fund, and (iv) fees paid by
BlackRock to PNC for Mutual Fund Administration Services provided by
PNC to such Fund, shall be terminable at will by the Second Fiduciary,
acting on behalf of such Client Plan, without penalty to such Client
Plan, upon receipt by PNC of a written notice of termination. A form
(the Termination Form), as defined, below, in Section IV(j), expressly
providing an election to terminate the authorizations, described,
above, in Section II(i), with instructions on the use of such
Termination Form must be provided to such Second Fiduciary at least
annually. However, if a Termination Form has been provided to such
Second Fiduciary, pursuant to Section II(k) and (l), below, then a
Termination Form need not be provided again, pursuant to this Section
II(j), unless at least six (6) months but no more than twelve (12)
months have elapsed, since a Termination Form was provided, pursuant to
Section II(k) and (l), below.
(2) The instructions for the Termination Form must include the
following statements:
(i) The authorization, described, above, in Section II(i), is
terminable at will by the Second Fiduciary, acting on
[[Page 13244]]
behalf of a Client Plan, without penalty to such Client Plan, upon
receipt by PNC of written notice from such Second Fiduciary.
(ii) Failure by such Second Fiduciary to return the Termination
Form on behalf of such Client Plan will be deemed to be an approval by
the Second Fiduciary and will result in the continuation of the
authorization, as described, above, in Section II(i), of PNC to engage
in the transactions which are the subject of this exemption.
(k) For a Client Plan invested in a Fund which uses one of the fee
methods described, above, in Section II(a)(1), (a)(2), or (a)(3), in
the event of a proposed change from one of the fee methods to another
or in the event of a proposed increase in the rate of any fee paid by a
Fund to BlackRock for any investment advisory service, or similar
service that BlackRock provides to such Fund over an existing rate for
such services or method of determining the fee for such services, which
had been authorized, in accordance with Section II(i), above, by the
Second Fiduciary for such Client Plan, at least thirty (30) days in
advance of the implementation of such change from one of the fee
methods to another or such increase in a fee, PNC will provide a
written notice (which may take the form of a proxy statement, letter,
or similar communication that is separate from the prospectus of such
Fund and which explains the nature and amount of such change from one
of the fee methods to another or increase in fee) to the Second
Fiduciary of each Client Plan affected by such change from one of the
fee methods to another or increased fee. Such notice shall be
accompanied by a Termination Form, with instructions on the use of such
Termination Form, as described, above, in Section II(j).\3\
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\3\ It is represented that PNC furnished only disclosure, not
advanced notice, of a mid-2007 advisory fee change to the Second
Fiduciaries of Client Plans invested in Funds using the Credit Fee
Method. The change, which resulted in increased fees to BlackRock of
0.5 basis points, (which it is represented was credited back to the
Client Plans) occurred effective June 1, 2007, with the disclosure
being provided in October 2007, after the effective date of such
change. As the Second Fiduciaries of the Client Plans did not
receive notification of such increase at least thirty (30) days in
advance of the implementation of such increase, the Department,
herein, is not providing relief for the receipt of such fee increase
by BlackRock.
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(l) In the event of:
(i) A proposed addition of a Secondary Service for which an
additional fee is charged; or
(ii) A proposed addition of a Mutual Fund Administration Service
provided by PNC to a Fund in which a Client Plan invests and for which
an additional fee is charged; or
(iii) A proposed increase in the rate of any fee paid by a Fund to
PNC for any Secondary Service, or
(iv) A proposed increase in the rate of any fee paid by BlackRock
to PNC for Mutual Fund Administration Services provided to such Fund,
or
(v) A proposed increase in the rate of any fee paid for Secondary
Services or for Mutual Fund Administration Services that results from
the decrease in the number or kind of services performed by PNC for
such fee over an existing rate for services which had been authorized,
in accordance with Section II(i), by the Second Fiduciary for a Client
Plan invested in such Fund, PNC, at least thirty (30) days in advance
of the implementation of such fee increase or additional service for
which an additional fee is charged, will provide a written notice
(which may take the form of a proxy statement, letter, or similar
communication that is separate from the prospectus of such Fund and
which explains the nature and amount of the additional service for
which an additional fee is charged or the nature and amount of the
increase in fees) to the Second Fiduciary of each Client Plan invested
in such Fund which is proposing to increase fees or add services for
which an additional fee is charged. Such notice shall be accompanied by
a Termination Form, with instructions on the use of such Termination
Form, as described, above in Section II(j).
(m) On an annual basis, PNC, serving as fiduciary to a Client Plan,
provides the Second Fiduciary of such Client Plan invested in a Fund
with:
(1) A copy of the current prospectus for such Fund in which such
Client Plan invests;
(2) Upon the request of such Second Fiduciary, a copy of the
Statement of Additional Information for such Fund which contains a
description of all fees paid by such Fund to PNC and all fees paid by
BlackRock to PNC for Mutual Fund Administration Services;
(3) A copy of the annual financial disclosure report which includes
information about Fund portfolios, as well as the audit findings of the
independent Auditor, within sixty (60) days of the preparation of such
report; and
(4) Oral or written responses to inquiries of the Second Fiduciary
of such Client Plan, as such inquiries arise.
(n) All dealings between a Client Plan and a Fund are on a basis no
less favorable to such Client Plan than dealings between such Fund and
other shareholders invested in such Fund.
Section III--General Conditions
(a) PNC maintains for a period of six (6) years the records
necessary to enable the persons described, below, in Section III(b) to
determine whether the conditions of this exemption have been met,
except that:
(1) A prohibited transaction will not be considered to have
occurred, if solely because of circumstances beyond the control of PNC,
the records are lost or destroyed prior to the end of the six-year
period, and
(2) No party in interest other than PNC shall be subject to the
civil penalty that may be assessed under section 502(i) of the Act or
to the taxes imposed by section 4975(a) and (b) of the Code if the
records are not maintained or are not available for examination as
required by Section III(b), below.
(b)(1) Except as provided in Section III(b)(2) and notwithstanding
any provisions of section 504(a)(2) of the Act, the records referred to
in Section III(a) are unconditionally available at their customary
location for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of a Client Plan who has authority to acquire or
dispose of shares of a Fund owned by such Client Plan, or any duly
authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of a Client Plan or duly
authorized employee or representative of such participant or
beneficiary.
(2) None of the persons described in Section III(b)(1)(ii) and
(iii) shall be authorized to examine trade secrets of PNC, or
commercial or financial information which is privileged or
confidential.
Section IV--Definitions
For purposes of this exemption:
(a) The term, ``PNC,'' means PNC Financial, and any affiliate
thereof, as defined, below in Section IV(c).
(b) The term, ``BlackRock,'' means BlackRock, Inc., and any
affiliate thereof, as defined, below in Section IV(c).
(c) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
[[Page 13245]]
(d) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(e) The term, ``Fund(s),'' shall mean any diversified open-end
investment company or companies registered with the Securities and
Exchange Commission under the Investment Company Act, as amended, for
which BlackRock serves as an investment adviser (but not sub-adviser).
(f) The term, ``net asset value,'' means the amount for purposes of
pricing all purchases and sales of shares of a Fund calculated by
dividing the value of all securities, determined by a method as set
forth in the prospectus for such Fund and in the statement of
additional information, and other assets belonging to the Fund or
portfolio of the Fund, less the liabilities charged to each such
portfolio or Fund, by the number of outstanding shares.
(g) The term, ``relative,'' means a relative as that term is
defined in section 3(15) of the Act (or a member of the family as that
term is defined in section 4975(e)(6) of the Code), or a brother, a
sister, or a spouse of a brother or a sister.
(h) The term, ``Second Fiduciary,'' means a fiduciary of a Client
Plan who is independent of and unrelated to PNC and BlackRock. For
purposes of this exemption, the Second Fiduciary will not be deemed to
be independent of and unrelated to PNC and BlackRock if:
(1) Such fiduciary, directly or indirectly controls, through one or
more intermediaries, is controlled by, or is under common control with
PNC or with BlackRock;
(2) Such fiduciary, or any officer, director, partner, employee, or
relative of the fiduciary, is an officer, director, partner, or
employee of PNC or of BlackRock (or is a relative of such persons); or
(3) Such fiduciary, directly or indirectly, receives any
compensation or other consideration for his or her personal account in
connection with any transaction described in this exemption.
If an officer, director, partner, or employee of PNC or of
BlackRock (or relative of such persons) is a director of such Second
Fiduciary, and if he or she abstains from participation in:
(i) The choice of such Client Plan's investment adviser,
(ii) The approval of any such purchase or sale between such Client
Plan and a Fund, and
(iii) The approval of any change in fees, as described, above, in
Section II(k) or (l), charged to or paid by such Client Plan in
connection with any of the transactions described in Section I above,
then Section IV(h)(2), above, shall not apply.
(i) The term, ``Secondary Service(s),'' means a service or services
which is/are provided by PNC to a Fund, including but not limited to
custodial, accounting, or administrative services. The fees for
providing Secondary Services to a Fund are paid to PNC by such Fund.
(j) The term, ``Termination Form,'' means the form supplied to a
Second Fiduciary which expressly provides an election to such Second
Fiduciary to terminate on behalf of a Client Plan the authorization
described, above, in Section II(i).
(k) The term, ``business day,'' means any day that
(i) PNC Financial is open for conducting all or substantially all
of its banking functions, and
(ii) The New York Stock Exchange (or any successor exchange) is
open for trading.
(l) The term, ``Mutual Fund Administration Services,'' means a
service or services which is/are provided by PNC to, or on behalf of, a
Fund, including PNC's maintaining records of investments by Client
Plans in such Fund, processing Fund transactions for Client Plans,
transmitting account statements and shareholder communications,
responding to inquiries from Client Plans regarding account balances
and dividends, and providing information to such Fund on sales and
assisting in monitoring possible market timing. The fees for providing
Mutual Fund Administration Services to a Fund are paid to PNC by
BlackRock, rather than by such Fund.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of September 29, 2006.
Summary of Facts and Representations
1. PNC Financial is a bank holding company that owns or controls
two banks and a number of non-bank subsidiaries. PNC Financial
provides, through its subsidiaries, a wide variety of trust and banking
services to individuals, corporations, and institutions. Through its
banking subsidiaries, PNC Financial provides investment management,
fiduciary and trustee services to employee benefit plans and charitable
and endowment assets, and provides non-discretionary services and
investment options for defined contribution plans. PNC Financial also
provides a range of tailored investment, trust, and private banking
products to affluent individuals and families. In addition, PNC
Financial and its affiliates provide various types of administrative
services to mutual funds, including acting as transfer and disbursing
agents and providing custodial and accounting services.
As of June 30, 2006, PNC Financial had $50 billion in assets under
management.
2. The Funds are open-end investment companies registered with the
Securities and Exchange Commission under the Investment Company Act, as
amended. The investment adviser to the Fund is BlackRock Advisors, Inc.
(BlackRock Advisors), a wholly-owned subsidiary of BlackRock, Inc.
which is a subsidiary of PNC Financial. BlackRock Advisors had $464.1
billion in assets under management, as of June 30, 2006. Based in New
York, BlackRock Advisors currently manages assets for institutional and
individual investors worldwide through a variety of equity, fixed
income, cash management, and alternative investment products.
The overall management of the Funds, including the negotiation of
investment advisory contracts, rests with the Board of Trustees that
are elected by the shareholders of the Funds.
3. PFPC Inc. serves as co-administrator, transfer agent, and
dividend disbursing agent for the Funds, and its parent company, PFPC
Trust Company, serves as custodian for the Funds. Both are indirect
wholly-owned subsidiaries of PNC Financial. The distributor for the
Funds is BlackRock Distributors, Inc., a wholly-owned subsidiary of
PFPC Inc. In the application file, PNC Financial represents that the
Funds or their agents may pay fees to broker-dealers that are
affiliates of PNC for omnibus account services with regard to
shareholders that have invested through such broker-dealers. In this
regard, PNC Financial has agreed to the exclusion from the scope of
relief under this proposed exemption of brokerage services provided to
the Funds by affiliated brokers for the execution of securities
transactions engaged in by the Funds.\4\
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\4\ The Department, herein, is not providing any relief for
brokerage services provided to the Funds by affiliated brokers for
the execution of securities transactions engaged in by the Funds.
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4. The Client Plans which are the subject of this exemption,
include employee benefit plans, as defined in section 3(3) of the Act,
and plans, as defined in section 4975(e)(1) of the Code.
PNC Financial, through its subsidiaries and affiliates serves as
trustee, investment manager, and in other similar fiduciary capacities
with
[[Page 13246]]
respect to retirement plans qualified under section 401(a) of the Code,
individual retirement accounts (IRAs) described in section 408 of the
Code, and welfare or other employee benefit plans that constitute
``employee plans,'' as defined in section 3(3) of the Act and/or plans,
as defined in section 4975(e)(1) of the Code. These services include
discretionary investment management programs under which PNC Financial
and its affiliates invest the assets of plans in securities, including
shares of open-end investment companies registered under the Investment
Company Act, the investment advisers of which may or may not be
affiliated with PNC Financial and its affiliates.
The specific Client Plans for which this exemption has been
requested are Client Plans to which PNC Financial or one of its
affiliates is a fiduciary with investment discretion and whose assets
either: (1) Are currently invested in the Funds; or (2) may in the
future be invested in the Funds.
The exemption is not being requested for in-house plans of PNC
Financial or its affiliates.
5. PNC provides discretionary investment management services to a
number of its Client Plans. As of June 30, 2006, PNC performed
discretionary asset management services, including through the
management of asset allocation models, for 1,102 employee benefit
accounts with total assets of $4.299 billion. PNC receives asset-based
compensation for its services to the Client Plans, which is paid for
either by a Client Plan from its assets or by the sponsor of a Client
Plan. In the course of managing assets for Client Plans, PNC may invest
the assets of such Client Plans in the Funds as a means of obtaining
more specialized management along with enhanced liquidity, economies of
scale, and greater diversification than would be available through a
separate account arrangement.
Investments by Client Plans in the Funds occur through direct
purchases of shares of the Funds on an ongoing basis. PNC also offers
an asset allocation product, Capital Directions, which utilizes the
Funds.
6. Section 406(a)(1)(A) of the Act prohibits a fiduciary with
respect to a plan from causing such plan to engage in a direct or
indirect sale or exchange of any property with a party in interest.
Section 406(a)(1)(D) of the Act prohibits a fiduciary with respect to a
plan from causing such plan to engage in a transaction, if he knows or
should know, that such transaction constitutes a transfer to, or use by
or for the benefit of, a party in interest, of any assets of such plan.
Sections 3(14)(A) and (B) of the Act define the term, ``party in
interest,'' to include, respectively, any fiduciary of a plan and any
person providing services to a plan. Under section 3(21)(A)(i) of the
Act, a person is a fiduciary with respect to a plan to the extent such
person exercises authority or control with respect to the management or
disposition of a plan's assets.
Under section 406(b) of the Act, a fiduciary with respect to a plan
may not: (1) Deal with the assets of a plan in his own interest or for
his own account, (2) in his individual or in any other capacity act in
any transaction involving a plan on behalf of a party (or represent a
party) whose interests are adverse to the interests of such plan or the
interests of its participants or beneficiaries, or (3) receive any
consideration for his own personal account from any party dealing with
a plan in connection with a transaction involving the assets of such
plan.
Where PNC is a fiduciary with respect to a Client Plan, the
investment of that Client Plan's assets in a Fund advised by BlackRock
may potentially raise issues under sections 406(a)(1)(D), 406(b)(1),
406(b)(2) and 406(b)(3) of the Act, unless an exemption is available.
Reliance on PTE 77-4
7. PTE 77-4 provides an exemption from section 406 of the Act and
section 4975 of the Code for the purchase or sale by a plan of mutual
fund shares where the investment adviser of such fund: (1) Is a plan
fiduciary or affiliated with a plan fiduciary; and (2) is not an
employer of employees covered by the plan. The conditions of the PTE
77-4 prohibit the payment of commissions by a plan, limit the payment
of redemption fees by such plan, require prior disclosure to and
approval by a second fiduciary, and prohibit the payment of double
investment advisory fees.
PNC is considered a fiduciary with respect to Client Plans for
which it has investment discretion. PNC has in the past used and
continues using investment discretion to invest the assets of Client
Plans in the Funds. In the past, PNC has relied on the relief provided
by PTE 77-4.
Description of Merger
8. On September 29, 2006, Merrill Lynch and Co., Inc. (Merrill
Lynch) merged its asset management group, Merrill Lynch Investment
Managers (MLIM), with BlackRock Advisors, in return for an interest in
BlackRock Advisors. The new company formed by the merger operates under
the ``BlackRock'' name and is governed by a Board of Directors with a
majority of independent members. As a result of the merger, Merrill
Lynch holds a 49.8 percent (49.8%) economic stake and about 45 percent
(45%) of the common stock of the new company, and the interest of PNC
in the common stock was reduced from approximately 70 percent (70%) to
approximately 34 percent (34%) of the new company. Further, as a result
of the merger, mutual funds previously advised by MLIM now have
BlackRock Advisors, acting as the investment adviser. The Funds
previously advised by BlackRock continue to operate as before. It is
represented that certain Funds with similar investment objectives will
be merged to simplify investment offerings. All Funds will be labeled
with the ``BlackRock'' name. For purposes of this proposed exemption,
the term, ``Fund(s),'' includes those former Merrill Lynch funds that,
following the merger, have BlackRock Advisors as the investment
adviser.
Availability of PTE 77-4 after the Merger
9. As discussed above, PTE 77-4 provides relief for investments in
a Fund by a Client Plan for which PNC is a fiduciary with investment
discretion. However, PTE 77-4 applies only where the investment adviser
to such Fund is also a fiduciary to such Client Plan, or an affiliate
of such a fiduciary. BlackRock is the investment adviser to the Funds.
However, because PNC, rather than BlackRock, is the fiduciary to the
Client Plan, PNC is concerned with its reliance on the relief provided
under PTE 77-4.
Retroactive Relief
10. The Applicant has requested retroactive relief pursuant to
ERISA Technical Release 85-1.\5\ It is represented that after the
merger was initially approved in February of 2006, PNC decided in June
of 2006, to seek an individual exemption. On September 26, 2006, the
Department received an application for exemption filed on behalf of PNC
which was dated September 25, 2006. It is represented that the
application was submitted as soon as possible under the circumstances.
In going forward on the basis of the requested relief, PNC represents
that it acted in good faith in this matter. Accordingly, PNC requests
that the proposed exemption be granted
[[Page 13247]]
retroactively to September 29, 2006, the date of the merger.
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\5\ Reprinted at [August 1983-August 1985 Transfer Binder] Pens.
Plan Guide (CCH) ] 23,672D.
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Receipt of Fees pursuant to the Fee Methods
11. PNC represents that, prior to the effective date of this
proposed exemption, it relied on PTE 77-4 for exemptive relief for each
of the fee methods: (a) The Offset Fee Method, (b) the Subtraction Fee
Method, and (c) the Credit Fee Method,\6\ as described in Section
II(a)(1), (a)(2), and (a)(3) of this proposed exemption. PNC has
confirmed that all three fee methods were in place on the effective
date of this exemption, September 29, 2006. As of this effective date,
the proposed exemption, if granted, would specifically permit PNC to
use any one of these three (3) fee methods to comply with the
prohibition against a Client Plan paying double investment management
fees, investment advisory or similar fees for assets of Client Plans
invested in a Fund, provided that the conditions of this exemption are
satisfied.
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\6\ It is the view of PNC that the Credit Fee Method is covered
by PTE 77-4. The Department does not concur with PNC's view that the
Credit Fee Method is covered under PTE 77-4. Accordingly, the
Department has determined that no relief is available under 77-4 for
PNC's use of the Credit Fee Method.
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It is represented that where a Client Plan is investing in a Fund,
all Fund-Level Fees for advisory or similar services related to that
Client Plan's investment in such Fund are subject to the same fee
method. It is represented that the fee methods are not applied on a
fund-by-fund basis. PNC Financial determines the fee method to be used,
subject to plan approval. As a general rule, Client Plan accounts use
the Credit Fee Method. An exception to the general rule involves Client
Plan accounts investing through Capital Directions, an asset allocation
program, which uses the Subtraction Fee Method. IRA's also use the
Subtraction Fee Method. The fee method to be used is described in the
disclosure provided at the opening of a Client Plan account, and
affirmatively approved at that time by the Second Fiduciary for such
Client Plan. It is represented that the Second Fiduciary of such Client
Plan is notified in advance of any change in the fee method and is
provided with a Termination Form. Failure by the Second Fiduciary of
such Client Plan to return the Termination Form on behalf of such
Client Plan is deemed to be an approval by the Second Fiduciary of a
change in the fee method.
Offset Fee Method
12. With regard to the Offset Fee Method, PNC represents that it
does not charge a Client Plan any direct fees for investment management
with respect to such Client Plan's assets invested in the Funds. Such
Client Plan pays fees to PNC solely for non-investment trust or custody
services. The fees a Client Plan pays for those assets invested in the
Funds come solely from the Funds in accordance with certain advisory
agreements. The result is that the Plan-Level Fees are offset, and the
Client Plan pays only an investment advisory or similar Fund-Level Fee
with respect to those plan assets invested in a Fund.
Subtraction Fee Method
13. With regard to the Subtraction Fee Method, PNC represents that
under this method, PNC charges a Client Plan a direct investment
management fee but credits to the benefit of such Client Plan, as a
subtraction to such Client Plan's Plan-Level Fees, its proportionate
share of the investment advisory fee for Client Plan assets invested in
a Fund and paid to BlackRock (as reduced by any waiver or rebate by
BlackRock of such fees to the Fund due to state law or other limits on
Fund expenses).\7\ The result is that a Client Plan pays only one
investment management fee with respect to those assets. The subtraction
is solely against those Plan-Level Fees charged by PNC for serving as
investment manager, and does not include non-investment management
trustee fees.
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\7\ It is represented that while fees above a certain limit may
be waived or rebated by BlackRock, as a technical matter the Funds
may pay the excess fees and then simultaneously receive a rebate of
the excess amount. For purposes of the Subtraction Fee Method,
described in this section, PNC intends to credit to Client Plans
only the net fees that BlackRock receives, and not to credit any of
the excess fees that have been rebated to the Funds.
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The credit under this Subtraction Fee Method and the credit under
the Credit Fee Method, as discussed below, do not include the co-
administrator, custodial, transfer agent, or other non-advisory fees
payable by the Funds to PNC, because these services rendered to the
Fund are not duplicative of any services provided directly to a Client
Plan. The co-administrator services assist in the administration and
operation of a Fund, which are matters particular to such Fund. The
custodial services provided by PNC to a Fund involve maintaining
custody and providing reporting relative to the individual securities
owned by such Fund. The custodial services provided by PNC to a Client
Plan, by contrast, involve maintaining custody over all or a portion of
the Client Plan's assets, which would include the Client Plan's shares
in a Fund, but not the assets underlying such Fund shares. These Client
Plan custody services are necessary regardless of whether such Client
Plan's assets are invested in the Funds.
Credit Fee Method
14. PNC represents that in 1989 at the time PNC converted its
collective investment funds into mutual funds, it started using the
Credit Fee Method to avoid duplicative investment advisory fees. PNC's
understanding at the time was that the Credit Fee Method was covered by
PTE 77-4.\8\
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\8\ See supra., footnote 6.
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Under the Credit Fee Method, PNC charges standard fees, as
applicable to each Client Plan, for serving as trustee and investment
manager, without any offset. In this method, a Client Plan receives ``a
credited dollar amount'' from BlackRock of such Client Plan's
proportionate share of all investment advisory fees charged by
BlackRock to the Funds for the particular month (as reduced by any
waiver or rebate by BlackRock of such fees, as described above). The
result of the Credit Fee Method is that a Client Plan pays its
proportionate share of the Fund-Level Fees, but receives a ``credited
dollar amount'' of such payment.
It is represented that the standard practice is to reinvest the
``credited dollar amount'' in additional shares of the same Fund with
respect to which the fees were credited. The additional shares so
acquired are valued at the net asset value on the date the purchase
request is transmitted to the Fund, which is the same day the
``credited dollar amount'' is made to the Client Plan's account.
It is represented that the Client Plans could, in theory, request
that the ``credited dollar amount'' be made in cash, instead of
additional shares. No such request has occurred to date, because it has
not been the practice of PNC to notify Client Plans that they have the
option to request cash, rather than additional shares. If such a
request were to be made, it is represented that the cash would be
invested in a money market account pending an investment direction from
the investment officer for the account.
The applicant points out that in other exemptions granted by the
Department, the timing of the credits generally occurred within one
business day of the date that the mutual fund investment adviser
received investment advisory fees. In the subject case, the applicant
represents that the fees for investment
[[Page 13248]]
advisory services, or similar services, provided by BlackRock to a Fund
that have accrued for a given month are not paid out to BlackRock until
certain calculations are confirmed between BlackRock and the accountant
for such Fund, which is generally not before the third week of the next
month. For example, the fees for investment advisory services, or
similar services, which accrue for the month of January, may not be
paid to BlackRock until the third week of February, or later. However,
it is represented that there is no consistent period of time after
BlackRock receives such fees for investment advisory services, or
similar services, that BlackRock then pays PNC the fees for Mutual Fund
Administration Services provided by PNC to such Fund. For instance,
under this example, BlackRock may not pay PNC until the following
month, i.e., March. For this reason, PNC has adopted a practice of
crediting the accrued fees for investment advisory services, or similar
services, for a given month to its Client Plans no later than the fifth
business day before the end of the month following the month in which
fees for investment advisory services or similar services accrued--in
this example, by the fifth business day before the end of February--
even if PNC has not yet received payment from BlackRock of the fees for
the provision of Mutual Fund Administrations Services by PNC to such
Fund. It is represented that PNC is implementing a system whereby it
will be notified when BlackRock receives its fees for investment
advisory services, or similar services, which will allow PNC to make
the credits to its Client Plans within one business day of when
BlackRock is paid. However, this system will not be in place until
January 2009. Therefore, while PNC agrees that the credit of the fees
for investment advisory services, or similar services, to the Client
Plans will occur no later than one business day after the receipt of
such fees by BlackRock, this condition is effective only for the fees
for investment advisory services, or similar services, accrued after
January 1, 2009. For prior periods, PNC has requested that consistent
with the original language in its application for exemption and with
PNC's practice prior to January 1, 2009, the requirement should be that
the credit of the fees for investment advisory services, or similar
services, accrued for a given month be made no later than the earlier
of either: (1) The same day as the receipt by PNC of the fees from
BlackRock for the provision of Mutual Fund Administration Services to a
Fund for that month, or (2) the fifth business day before the end of
the month following the month in which fees for investment advisory
services, or similar services, accrued. Accordingly, section II(a)(3)
of this proposed exemption reads as follows:
A Client Plan invested in a Fund receives a ``a credit'' of such
Client Plan's proportionate share of all fees charged to such Fund
by BlackRock for investment advisory services, or similar services,
for a particular month: (1) Effective for the period, September 29,
2006, through December 31, 2008, on the earlier of either: (a) The
same day as PNC receives a fee from BlackRock for Mutual Fund
Administration Services provided for that month to such Fund by PNC,
or (b) the fifth business day before the end of the month following
the month in which fees for investment advisory services, or similar
services, accrued, or (2) effective for the period beginning,
January 1, 2009, and continuing thereafter, on a date which is no
later than one business day after BlackRock receives fees from the
Fund for investment advisory services, or similar services, provided
for that month to such Fund by BlackRock.
Audit of the Credit Fee Method
15. It is represented that there are sufficient safeguards to
permit exemptive relief for the use by PNC of the Credit Fee Method. In
this regard, PNC will establish and maintain a system of internal
accounting controls for crediting the fees under the Credit Fee Method.
In addition, PNC will retain the services of an independent Auditor to
audit annually the crediting of fees to the Client Plans under the
Credit Fee Method. Such audits will provide independent verification of
the proper crediting to such Client Plans.
In the annual audit of the Credit Fee Method, the Auditor will use
procedures designed to review and test compliance with the specific
operational controls and procedures established by PNC for making the
credits. Specifically, the Auditor will: (i) Verify on a test basis the
investment advisory fees paid by the Funds to BlackRock; (ii) verify on
a test basis the monthly factors used to determine the investment
advisory fees; (iii) verify on a test basis the credits paid in total
for a one-month period; (iv) re-compute, on a test basis, using the
monthly factors described above, the amount of the credit determined
for selected Client Plans; (v) verify on a test basis the proper
assignment of identification fields for receipt of fee credits to the
Client Plans; and (vi) verify on a test basis that the credits were
posted to the Client Plans within the required timeframe.
In the event either the internal audit made by PNC or the
independent audit made by the Auditor identifies an error in the
crediting of fees to a Client Plan, PNC will correct the error. With
respect to any shortfall in credited fees to a Client Plan, PNC will
make a cash payment to such Client Plan equal to the amount of the
error, plus interest paid at money market rates offered by PNC for the
period involved. Any excess credits made to a Client Plan will be
corrected by an appropriate deduction from such Client Plan or
reallocation of cash during the next payment period after discovery of
the error to reflect accurately the amount of total credits due to such
Client Plan for the period involved.
Receipt of Secondary Services Fees
16. Prior to the effective date of this proposed exemption, it is
represented that the receipt by PNC of fees paid out of the assets of a
Fund for Secondary Services, such as custodial, administrative,
accounting, and transfer agency services, provided by PNC to such Fund
were treated as exempt under PTE 77-4, pursuant to Advisory Opinion 93-
12A (Apr. 27, 1993, addressed to PNC Financial). It is further
represented that Advisory Opinion 93-12A permits such fees for
Secondary Services: (a) To be paid to PNC by a Fund where PNC also
receives fees as the investment adviser to such Fund, and (b) to be
retained by PNC without the need for PNC to offset or waive such
fees.\9\
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\9\ With respect to the relief available under PTE 77-4,
pursuant to Advisory Opinion 93-12A, no reference is made to the
Credit Fee Method. Accordingly, the Department has determined that
the relief available under PTE 77-4, pursuant to Advisory Opinion
93-12A was not in the past and is not now available for the Credit
Fee Method.
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PNC requests an administrative exemption, effective as of September
29, 2006, for receipt of fees by PNC for the provision of Secondary
Services to the Funds, because it is no longer clear that relief for
the receipt of Secondary Services fees by PNC, which prior to the
merger was treated as exempt under PTE 77-4, pursuant to Advisory
Opinion 93-12A, continues to be available after the merger.
Receipt of Mutual Fund Administration Services Fees
17. It is represented that PNC also has provided in the past and
continues to provide Mutual Fund Administration Services to, or on
behalf of, the Funds. Mutual Fund Administration Services are part of
an omnibus arrangement which includes maintaining records of
investments by Client Plans in the Funds, processing Fund transactions
for Client Plans, transmitting account
[[Page 13249]]
statements and shareholder communications, responding to inquiries from
Client Plans regarding account balances and dividends, and providing
information to the Funds on sales and assisting in monitoring possible
market timing.
PNC has received fees in the past and continues to receive fees for
the provision of Mutual Fund Administration Services to the Funds. The
Funds do not pay the fees for the Mutual Fund Administration Services
provided by PNC. Instead, BlackRock, the investment adviser to the
Fund, pays the fees to PNC for Mutual Fund Administration Services. It
is represented that many mutual fund advisers have adopted the practice
of covering service costs out of their own assets, a practice referred
to as ``adviser pay.''
It is represented that the fees for the provision of Mutual Fund
Administration Services by PNC are currently fifteen (15) basis points
for assets in money market funds, twenty (20) basis points for assets
in fixed income funds (except three funds as to which the fee is five
(5) basis points), and twenty-five (25) basis points for assets in
equity funds (except one fund as to which the fee is four (4) basis
points). It is represented that the fees for such Mutual Fund
Administration Services are subject to negotiation.
The Department believes that the receipt of fees by PNC from
BlackRock for the provision of Mutual Fund Administration Services by
PNC to the Funds is beyond the scope of relief provided by PTE 77-4.
PNC has not requested, and the Department is not providing, relief in
this proposed exemption for the payment, prior to the date of the
merger, by BlackRock of fees for the provision of Mutual Fund
Administration Services by PNC to the Funds.
However, PNC has requested an individual administrative exemption,
effective as of September 29, 2006, the date of the merger, to cover
the payment by BlackRock to PNC Bank, National Association (PNC Bank),
an affiliate of PNC, of fees for the provision of Mutual Fund
Administration Services by PNC Bank to the assets in a Fund for which
BlackRock serves as investment adviser.
In the Interest of Client Plans
18. The applicant represents that the proposed exemption is in the
interest of the Client Plans and their participants and beneficiaries.
In this regard, the Funds provide advantages for Client Plans,
including professional management, the ability to monitor performance
on a daily basis, and the flexibility to purchase and redeem shares on
a daily basis. It is represented that no sales commissions are charged
to Client Plans in connection with the purchase or sale of shares in
any of the Funds. In addition, these investments in the Funds by Client
Plans are made in certain classes of shares, which are not subject to
12b-1 fees. Redemption fees are charged only if disclosed in the
prospectuses in effect at both the time of the original investment in
the shares of a Fund and the time of redemption.
It is further represented that the Funds provide a means for Client
Plans with limited assets to achieve diversification of investment in a
manner that may not be attainable through direct investment. For these
reasons, the applicant maintains that the availability of the Funds as
investments enable PNC, as investment manager, to better meet the
investment goals and strategies of a Client Plan.
Protective of Client Plans
19. It is represented that the proposed exemption contains
sufficient safeguards for the protection of the Client Plans invested
in the Funds. In this regard, prior to any investment by a Client Plan
in a Fund, the investment must be authorized in writing by the Second
Fiduciary of such Client Plan, based on full and detailed written
disclosure concerning such Fund.
In addition to the initial disclosures received by the Second
Fiduciary of a Client Plan invested in a Fund, PNC provides to such
Second Fiduciary ongoing disclosures regarding such Fund and the fee
methods. Specifically, on an annual basis, such Second Fiduciary
receives copies of the current Fund prospectuses, as well as copies of
the annual financial disclosure reports containing information about
the Funds and audit findings of the Auditor within sixty (60) days of
the preparation of such report.
Further, it is represented that PNC Financial or an appropriate
affiliate, thereof, will respond to inquiries from a Second Fiduciary.
In addition, a Second Fiduciary, upon request, will receive copies of
the Statements of Additional Information for the Funds and a copy of
the proposed exemption and a copy of the final exemption, if granted,
once such documents are published in the Federal Register.
Furthermore, each investment of the assets of a Client Plan in a
Fund will be subject to the ongoing ability of the Second Fiduciary of
such Client Plan to terminate the investment in such Fund without
penalty to such Client Plan at any time upon written notice of
termination to PNC. In this regard, a Termination Form, expressly
providing an election to terminate the authorization, with instructions
on the use of such Termination Form, will be supplied to the Second
Fiduciary at least annually.
The Termination Form may be used to notify PNC, in writing to
effect a termination by selling the shares of the Funds held by a
Client Plan. Such sales are to occur within one (1) business day, as
defined in Section IV(k) of this exemption, following receipt by PNC of
the Termination Form. If, due to circumstances beyond the control of
PNC, the sale cannot be executed within one (1) business day, PNC will
be obligated to complete the sale within the next business day.
In addition, by using the Termination Form that PNC provides thirty
(30) days in advance of any increase in the rate of fees and change in
services, the Second Fiduciary will have sufficient opportunity to
terminate a Client Plan's investment in a Fund, without penalty to the
Client Plan, and withdraw the Client Plan's investment from such Fund
in advance of any such increase in fee and change in services.
Feasibility
20. The applicant represents that the proposed exemption is
feasible in that compliance with the terms of the exemption will be
monitored by the Second Fiduciary of a Client Plan who is independent
of PNC. Further, PNC provides internal accounting safeguards to ensure
the accuracy of the calculation of the ``credited dollar amounts''
under the Credit Fee Method, and an independent Auditor will provide
assurance that the Credit Fee Method is properly administered. For
these reasons, the applicant maintains that the Department will not
have to monitor the implementation and enforcement of the exemption.
Further, it is represented that the negative consent procedure, as
described in the proposed exemption, for obtaining the approval from
the Second Fiduciary of each Client Plan invested in a Fund for
increases in fees and the addition of services for which a fee is
charged is more efficient, cost effective, and administratively
feasible than written affirmative consent approval, as described in PTE
77-4.
Under PTE 77-4, an increase in fees and any change in services may
not be implemented until written approval of such increase or change is
obtained from every Second Fiduciary of Client Plans invested in a
Fund. A communication failure that results in not obtaining an
affirmative written approval from a Second Fiduciary of a
[[Page 13250]]
Client Plan could force PNC to transfer a Client Plan's investments out
of a Fund.
Under the negative consent procedure, as set forth in this proposed
exemption, the difficulties of obtaining written affirmative approval
from the Second Fiduciary of each Client Plan and coordinating any fee
increases and any additional services for which a fee is charged will
be avoided while such Second Fiduciary will still receive the necessary
disclosures. Specifically, each Second Fiduciary of a Client Plan
invested in a Fund will receive advanced notice in a statement separate
from such Fund's prospectus of any proposed change from one fee method
to another or any proposed increase in a rate of fee for investment
advisory services, or similar services, paid to BlackRock that was
previously disclosed in the Fund prospectus. In addition, each Second
Fiduciary will receive advanced notice of any additional Secondary
Service or Mutual Fund Administration Service for which a fee is
charged and any increase of any rate of any fee paid for Mutual Fund
Administration Services and any Secondary Services to PNC or an
increase in a rate of any fee that results from an addition or
elimination in the number or kind of service performed by PNC in
connection with a previously authorized fee for such service. With
regard to the affected Fund, the advanced notice will contain an
explanation of the nature and amount of the increase in fees and the
nature and amount of the addition (or elimination) of a service for
which an additional fee is charged. The Second Fiduciary will receive
such advanced notice thirty (30) days prior to the effective date of
such increase in the rate of fees and change in services with respect
to a Client Plan's investment in a Fund. Such advanced notice must be
accompanied by a Termination Form that would allow the Second Fiduciary
to terminate, without penalty to the Client Plan, the authorization to
invest in the Funds. The notice requirement would not apply if an
increase is the result of the cessation of a voluntary temporary waiver
of fees by PNC, and the full fee level had previously been described in
writing to and authorized by the Second Fiduciary. Failure to return
the Termination Form by the thirtieth (30th) day will result in the
negative consent of the Second Fiduciary to the increase in the fees
and to the addition of services for which an additional fee is charged.
21. In summary, the applicant represents that the proposed
transactions satisfy the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons:
(a) The Funds will provide Client Plans with an effective
investment vehicle;
(b) The investment by Client Plan in the Funds and the payment of
fees for Secondary Services by the Funds to PNC, the payment of fees
for Mutual Fund Administration Services by BlackRock to PNC, and the
payment of fees for investment advisory or similar services by the
Funds to BlackRock in connection the investment in the Funds by Client
Plans will require an authorization in writing in advance by a Second
Fiduciary after full written disclosure, including current prospectuses
for the Funds and a statement describing the fee method to be used;
(c) Any authorization made by a Second Fiduciary will be terminable
at will by that Second Fiduciary, without penalty to the Client Plan,
within one (1) business day or one additional business day, if
necessary, following receipt by PNC of written notice of termination
from the Second Fiduciary on a form expressly providing an election to
terminate the authorization, which will be supplied to the Second
Fiduciary at least annually, or any other written notice of
termination;
(d) No sales commissions will be paid by Client Plans in connection
with the acquisition or sale of shares of the Funds and only redemption
fees disclosed in a Fund's prospectus will be paid by Client Plans;
(e) All dealings among the Client Plans, any of the Funds, PNC, and
BlackRock will be on a basis no less favorable to such Client Plans
than such dealings with the other shareholders of the Funds;
(f) Client Plans investing in the Funds will pay only a single
level of investment management, investment advisory, or similar fees
with respect to the assets of such Client Plans so invested; and
(g) PNC will require annual audits by an independent accounting
firm to verify that the Client Plans using the Credit Fee Method
receive proper credits for the fees paid to PNC by the Funds.
Notice to Interested Persons
Those persons who may be interested in the publication in the
Federal Register of the Notice of Proposed Exemption (the Notice)
include the Second Fiduciary of each Client Plan invested in any of the
Funds.
It is represented that notification will be provided to these
interested persons by first class mail, within fifteen (15) calendar
days of the date of the publication of the Notice in the Federal
Register. Such mailing will contain a copy of the Notice, as it appears
in the Federal Register on the date of publication, plus a copy of the
Supplemental Statement, as required, pursuant to 29 CFR 2570.43(b)(2),
which will advise all interested person of their right to comment and
to request a hearing.
The Department must receive all written comments and requests for a
hearing no later than forty-five (45) days from the date of the
publication of the Notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Angelena Le Blanc of the Department,
telephone (202) 693-8540 (This is not a toll-free number.)
Barclays Bank PLC and Barclays Capital Inc. (Collectively, Barclays or
the Applicants)
Located, respectively, in London, England and New York, New York
[Application No. D-11552]
Background
Barclays has requested an individual exemption that would replace
and modify exemptive relief, previously provided pursuant to Prohibited
Transaction Exemption 96-62,\10\ for its securitization activities,
which generally permits employee benefit plans to purchase, hold, sell
or exchange certain securities representing interests in asset-backed
or mortgage-backed investment pools. Barclays requests exemptive relief
for sales of ``pass through'' notes/securities to investors, including
employee benefit plans, representing pools of secured notes and senior
unsecured notes issued by small and mid-sized banks.
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\10\ For more information, see item number 3 under the heading
entitled ``Summary of Facts and Representations.''
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In response to the current financial and liquidity crisis, the FDIC
adopted the TLG Program, which guarantees newly issued senior unsecured
debt of certain financial institutions. The FDIC guarantee is backed by
the full faith and credit of the United States. In general, the
requested exemption would permit Barclays and its affiliates to
underwrite and sell the pass through notes/securities and also to
service, manage and operate the trust holding the pools of bank debt
guaranteed under the TLG Program.
Because Barclays has represented that the FDIC is considering
whether the Debt Guarantee Program should be extended to secured bank
debt that supports new consumer lending, the Department also
specifically solicits
[[Page 13251]]
comments on extending the scope of the proposed exemptive relief to
include such debt. The Department believes that in order to make the
requisite section 408(a) findings for the proposed exemptive relief
with respect to such secured debt, the debt must be explicitly included
in the Debt Guarantee Program and also must be subject to the same
protections that the FDIC affords to senior unsecured debt. To the
extent that this would not be the case, the Department will consider,
based upon public comments, whether to retain or eliminate such secured
debt issuances from the exemptive relief granted by the Department.
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990):
I. Transactions
A. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by sections 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the
following transactions involving Issuers and Securities evidencing
interests therein:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and an employee benefit plan when the Sponsor, Servicer,
Trustee or Insurer of an Issuer, the Underwriter of the Securities
representing an interest in the Issuer, or an Obligor is a party in
interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.A.(1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 of the Act for the acquisition or holding of a Security on behalf
of an Excluded Plan by any person who has discretionary authority or
renders investment advice with respect to the assets of that Excluded
Plan.\11\
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\11\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2)and 407 of the Act for any person rendering investment
advice, within the meaning of section 3(21)(A)(ii) of the Act and
regulation 29 CFR 2510.3-21(c), to an Excluded Plan.
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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by sections 4975(a) and (b) of the Code, by
reason of section 4975(c)(1)(E) of the Code shall not apply to:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and a plan when the person who has discretionary authority
or renders investment advice with respect to the investment of plan
assets in the Securities is (a) an Obligor with respect to 5 percent or
less of the fair market value of obligations or receivables contained
in the Issuer, or (b) an Affiliate of a person described in (a), if:
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of Securities in
connection with the initial issuance of the Securities, at least 50
percent of each class of Securities in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
and at least 50 percent of the aggregate interest in the Issuer is
acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of Securities does not
exceed 25 percent of all of the Securities of that class outstanding at
the time of the acquisition; and
(iv) Immediately after the acquisition of the Securities, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in Securities representing an interest in an Issuer containing
assets sold or serviced by the same entity.\12\ For purposes of this
paragraph B.(1)(iv) only, an entity will not be considered to service
assets contained in an Issuer if it is merely a Subservicer of that
Issuer;
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\12\ For purposes of this proposed exemption, each plan
participating in a commingled fund (such as a bank collective trust
fund or insurance company pooled separate account) shall be
considered to own the same proportionate undivided interest in each
asset of the commingled fund as its proportionate interest in the
total assets of the commingled fund as calculated on the most recent
preceding valuation date of the fund.
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(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities, provided that
conditions set forth in paragraphs (i), (iii) and (iv) of subsection
I.B.(1) are met; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.B.(1) or (2).
C. The restrictions of sections 406(a), 406(b), and 407(a) of the
Act and the taxes imposed by sections 4975(a) and (b) of the Code by
reason of section 4975(c) of the Code, shall not apply to transactions
in connection with the servicing, management and operation of an
Issuer, including the use of any Eligible Swap transaction; or the
defeasance of a mortgage obligation held as an asset of the Issuer
through the substitution of a new mortgage obligation in a commercial
mortgage-backed Designated Transaction, provided:
(1) Such transactions are carried out in accordance with the terms
of a binding Pooling and Servicing Agreement;
(2) The Pooling and Servicing Agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
Securities issued by the Issuer; \13\ and
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\13\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the securities
were made in a registered public offering under the Securities Act
of 1933. In the Department's view, the private placement memorandum
must contain sufficient information to permit plan fiduciaries to
make informed investment decisions. For purposes of this exemption,
references to the term ``prospectus'' include any related prospectus
supplement thereto, pursuant to which Securities are offered to
investors.
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(3) The defeasance of a mortgage obligation and the substitution of
a new mortgage obligation in a commercial mortgage-backed Designated
Transaction meet the terms and conditions for such defeasance and
substitution as are described in the prospectus or private placement
memorandum for such Securities, which terms and conditions have been
approved by a Rating Agency and does not result in the Securities
receiving a lower credit rating from the Rating Agency than the current
rating of the Securities.
Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act or from
the taxes imposed by reason of section 4975(c) of the Code for the
receipt of a fee by a Servicer of the Issuer from a person other than
the Trustee or Sponsor, unless such fee constitutes a Qualified
Administrative Fee.
D. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by sections 4975(a) and (b) of the Code by reason of
Code section 4975(c)(1)(A) through (D) of the Code shall not apply to
any transactions to which those restrictions or taxes would otherwise
apply merely because a
[[Page 13252]]
person is deemed to be a party in interest or disqualified person
(including a fiduciary), with respect to the plan by virtue of
providing services to the plan (or by virtue of having a relationship
to such service provider described in section 3(14)(F), (G), (H) or (I)
of the Act or section 4975(e)(2)(F), (G), (H) or (I) of the Code),
solely because of the plan's ownership of Securities.
II. General Conditions
A. The relief provided under section I. is available only if the
following conditions are met:
(1) The acquisition of Securities by a plan is on terms (including
the Security price) that are at least as favorable to the plan as such
terms would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the Securities are not
subordinated to the rights and interests evidenced by other Securities
of the same Issuer, unless the Securities are issued in a Designated
Transaction;
(3) The Securities acquired by the plan have received a rating from
a Rating Agency at the time of such acquisition that is in one of the
three (or in the case of Designated Transactions, four) highest generic
rating categories.
(4) The Trustee is not an Affiliate of any member of the Restricted
Group, other than an Underwriter. For purposes of this requirement:
(a) The Trustee shall not be considered an Affiliate of a Servicer
solely because the Trustee has succeeded to the rights and
responsibilities of the Servicer pursuant to the terms of a Pooling and
Servicing Agreement providing for such succession upon the occurrence
of one or more events of default by the Servicer; and
(b) Subsection II.A.(4) will be deemed satisfied notwithstanding a
Servicer becoming an Affiliate of the Trustee as a result of a merger
or acquisition involving the Trustee, such Servicer and/or their
Affiliates which occurs after the initial issuance of the Securities,
provided that:
(i) Such Servicer ceases to be an Affiliate of the Trustee no later
than six months after the date such Servicer became an Affiliate of the
Trustee; and
(ii) Such Servicer did not breach any of its obligations under the
Pooling and Servicing Agreement, unless such breach was immaterial and
timely cured in accordance with the terms of such agreement, during the
period from the closing date of such merger or acquisition transaction
through the date the Servicer ceased to be an Affiliate of the Trustee;
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution or placement of
Securities represents not more than Reasonable Compensation for
underwriting or placing the Securities; the sum of all payments made to
and retained by the Sponsor pursuant to the assignment of obligations
(or interests therein) to the Issuer represents not more than the fair
market value of such obligations (or interests); and the sum of all
payments made to and retained by the Servicer represents not more than
Reasonable Compensation for the Servicer's services under the Pooling
and Servicing Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith;
(6) The plan investing in such Securities is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933;
and
(7) In the event that the obligations used to fund an Issuer have
not all been transferred to the Issuer on the Closing Date, additional
obligations as specified in subsection III.B.(1) may be transferred to
the Issuer during the Pre-Funding Period in exchange for amounts
credited to the Pre-Funding Account, provided that:
(a) The Pre-Funding Limit is not exceeded;
(b) All such additional obligations meet the same terms and
conditions for eligibility as the original obligations used to create
the Issuer (as described in the prospectus or private placement
memorandum and/or Pooling and Servicing Agreement for such Securities),
which terms and conditions have been approved by a Rating Agency.
Notwithstanding the foregoing, the terms and conditions for
determining the eligibility of an obligation may be changed if such
changes receive prior approval either by a majority vote of the
outstanding securityholders or by a Rating Agency;
(c) The transfer of such additional obligations to the Issuer
during the Pre-Funding Period does not result in the Securities
receiving a lower credit rating from a Rating Agency, upon termination
of the Pre-Funding Period than the rating that was obtained at the time
of the initial issuance of the Securities by the Issuer;
(d) The weighted average annual percentage interest rate (the
average interest rate) for all of the obligations in the Issuer at the
end of the Pre-Funding Period will not be more than 100 basis points
lower than the average interest rate for the obligations which were
transferred to the Issuer on the Closing Date;
(e) In order to ensure that the characteristics of the receivables
actually acquired during the Pre-Funding Period are substantially
similar to those which were acquired as of the Closing Date, the
characteristics of the additional obligations will either be monitored
by a credit support provider or other insurance provider which is
independent of the Sponsor or an independent accountant retained by the
Sponsor will provide the Sponsor with a letter (with copies provided to
the Rating Agency, the Underwriter and the Trustee) stating whether or
not the characteristics of the additional obligations conform to the
characteristics of such obligations described in the prospectus,
private placement memorandum and/or Pooling and Servicing Agreement. In
preparing such letter, the independent accountant will use the same
type of procedures as were applicable to the obligations which were
transferred on the Closing Date;
(f) The Pre-Funding Period shall be described in the prospectus or
private placement memorandum provided to investing plans; and
(g) The Trustee of the Trust (or any agent with which the Trustee
contracts to provide Trust services) will be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities, and liabilities as a
fiduciary under the Act. The Trustee, as the legal owner of the
obligations in the Trust or the holder of a security interest in the
obligations held by the Issuer, will enforce all the rights created in
favor of securityholders of the Issuer, including employee benefit
plans subject to the Act.
(8) In order to ensure that the assets of the Issuer may not be
reached by creditors of the Sponsor in the event of bankruptcy or other
insolvency of the Sponsor:
(a) The legal documents establishing the Issuer will contain:
(i) Restrictions on the Issuer's ability to borrow money or issue
debt other than in connection with the securitization;
(ii) Restrictions on the Issuer merging with another entity,
reorganizing, liquidating or selling assets (other than in connection
with the securitization);
(iii) Restrictions limiting the authorized activities of the Issuer
to activities relating to the securitization;
(iv) If the Issuer is not a Trust, provisions for the election of
at least one
[[Page 13253]]
independent director/partner/member whose affirmative consent is
required before a voluntary bankruptcy petition can be filed by the
Issuer; and
(v) If the Issuer is not a Trust, requirements that each
independent director/partner/member must be an individual that does not
have a significant interest in, or other relationships with, the
Sponsor or any of its Affiliates; and
(b) The Pooling and Servicing Agreement and/or other agreements
establishing the contractual relationships between the parties to the
securitization transaction will contain covenants prohibiting all
parties thereto from filing an involuntary bankruptcy petition against
the Issuer or initiating any other form of insolvency proceeding until
after the Securities have been paid; and
(c) Prior to the issuance by the Issuer of any Securities, a legal
opinion is received which states that either:
(i) A ``true sale'' of the assets being transferred to the Issuer
by the Sponsor has occurred and that such transfer is not being made
pursuant to a financing of the assets by the Sponsor; or
(ii) In the event of insolvency or receivership of the Sponsor, the
assets transferred to the Issuer will not be part of the estate of the
Sponsor;
(9) If a particular class of Securities held by any plan involves a
Ratings Dependent or a Non-Ratings Dependent Swap entered into by the
Issuer, then each particular swap transaction relating to such
Securities:
(a) Shall be an Eligible Swap;
(b) Shall be with an Eligible Swap Counterparty;
(c) In the case of a Ratings Dependent Swap, shall provide that if
the credit rating of the counterparty is withdrawn or reduced by any
Rating Agency below a level specified by the Rating Agency, the
Servicer (as agent for the Trustee) shall, within the period specified
under the Pooling and Servicing Agreement:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) Cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
Securities will not be withdrawn or reduced.
In the event that the Servicer fails to meet its obligations under
this subsection II.A.(9)(c), plan securityholders will be notified in
the immediately following Trustee's periodic report which is provided
to securityholders, and sixty days after the receipt of such report,
the exemptive relief provided under section I.C. will prospectively
cease to be applicable to any class of Securities held by a plan which
involves such Ratings Dependent Swap; provided that in no event will
such plan securityholders be notified any later than the end of the
second month that begins after the date on which such failure occurs.
(d) In the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the counterparty is withdrawn or reduced
below the lowest level specified in section III.GG., the Servicer (as
agent for the Trustee) shall within a specified period after such
rating withdrawal or reduction:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) Cause the swap counterparty to post collateral with the
Trustee in an amount equal to all payments owed by the counterparty if
the swap transaction were terminated; or
(iii) Terminate the swap agreement in accordance with its terms;
and
(e) Shall not require the Issuer to make any termination payments
to the counterparty (other than a currently scheduled payment under the
swap agreement) except from Excess Spread or other amounts that would
otherwise be payable to the Servicer or the Sponsor;
(10) Any class of Securities, to which one or more swap agreements
entered into by the Issuer applies, may be acquired or held in reliance
upon this exemption only by Qualified Plan Investors; and
(11) Prior to the issuance of any debt securities, a legal opinion
is received which states that the debt holders have a perfected
security interest in the Issuer's assets.
B. Neither any Underwriter, Sponsor, Trustee, Servicer, Insurer,
nor any Obligor, unless it or any of its Affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire Securities, shall be denied the relief
provided under section I., if the provision of subsection II.A.(6) is
not satisfied with respect to acquisition or holding by a plan of such
Securities, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of Securities, the Trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's Securities) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6).
III. Definitions
For purposes of this proposed exemption:
A. ``Security'' means:
(1) A pass-through certificate or trust certificate that represents
a beneficial ownership interest in the assets of an Issuer which is a
Trust and which entitles the holder to payments of principal, interest
and/or other payments made with respect to the assets of such Trust; or
(2) A security which is denominated as a debt instrument that is
issued by, and is an obligation of, an Issuer; with respect to which
the Underwriter is either (i) the sole underwriter or the manager or
co-manager of the underwriting syndicate, or (ii) a selling or
placement agent.
B. ``Issuer'' means an investment pool, the corpus or assets of
which are held in trust (including a grantor or owner Trust) or whose
assets are held by a partnership, special purpose corporation or
limited liability company (which Issuer may be a Real Estate Mortgage
Investment Conduit (REMIC) or a Financial Asset Securitization
Investment Trust (FASIT) within the meaning of section 860D(a) or
section 860L, respectively, of the Code); and the corpus or assets of
which consists solely of:
(1)(a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association); and/or
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, Qualified Equipment Notes Secured by
Leases); and/or
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and/or commercial real property (including obligations
secured by leasehold interest
[[Page 13254]]
on residential or commercial real property); and/or
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or Qualified
Motor Vehicle Leases; and/or
(e) Guaranteed governmental mortgage pool certificates, as defined
in 29 CFR 2510.3-101(i)(2) \14\; and/or
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\14\ In ERISA Advisory Opinion 99-05A (February 22, 1999), the
Department expressed its view that mortgage pool certificates
guaranteed and issued by the Federal Agricultural Mortgage
Corporation meet the definition of a guaranteed governmental
mortgage pool certificate as defined in 29 CFR 2510.3-101(i)(2).
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(f) Secured debt and senior unsecured debt (excluding mandatory
convertible debt), issued by an eligible entity, as defined in 12 CFR
370.2(a), that are fully guaranteed as to timely payment of principal
and interest by the Federal Deposit Insurance Corporation (FDIC) under
the Debt Guarantee Program of the Temporary Liquidity Guarantee Program
(TLG Program) and that are backed by the full faith and credit of the
United States; and/or
(g) Fractional undivided interests in any of the obligations
described in clauses (a)-(f) of this subsection B.(1).\15\
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\15\ It is the Department's view that the definition of
``Issuer'' contained in section III.B. includes a two-tier structure
under which Securities issued by the first Issuer, which contains a
pool of receivables described above, are transferred to a second
Issuer which issues Securities that are sold to plans. However, the
Department is of the further view that, since the Underwriter
Exemptions generally provide relief for the direct or indirect
acquisition or disposition of Securities that are not subordinated,
no relief would be available if the Securities held by the second
Issuer were subordinated to the rights and interests evidenced by
other Securities issued by the first Issuer, unless such Securities
were issued in a Designated Transaction.
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Notwithstanding the foregoing, residential and home equity loan
receivables issued in Designated Transactions may be less than fully
secured, provided that: (i) the rights and interests evidenced by
Securities issued in such Designated Transactions (as defined in
section III.DD.) are not subordinated to the rights and interests
evidenced by Securities of the same Issuer; (ii) such Securities
acquired by the plan have received a rating from a Rating Agency at the
time of such acquisition that is in one of the two highest generic
rating categories; and (iii) any obligation included in the corpus or
assets of the Issuer must be secured by collateral whose fair market
value on the Closing Date of the Designated Transaction is at least
equal to 80% of the sum of: (I) The outstanding principal balance due
under the obligation which is held by the Trust and (II) the
outstanding principal balance(s) of any other obligation(s) of higher
priority (whether or not held by the Issuer) which are secured by the
same collateral.
(2) Property which had secured any of the obligations described in
subsection III.B.(1);
(3)(a) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to be
made to securityholders; and/or
(b) Cash or investments made therewith which are credited to an
account to provide payments to securityholders pursuant to any Eligible
Swap Agreement meeting the conditions of subsection II.A.(9) or
pursuant to any Eligible Yield Supplement Agreement, and/or
(c) Cash transferred to the Issuer on the Closing Date and
permitted investments made therewith which:
(i) Are credited to a Pre-Funding Account established to purchase
additional obligations with respect to which the conditions set forth
in paragraphs (a)-(g) of subsection II.A.(7) are met; and/or
(ii) Are credited to a Capitalized Interest Account; and
(iii) Are held by the Issuer for a period ending no later than the
first distribution date to securityholders occurring after the end of
the Pre-Funding Period.
For purposes of this clause (c) of subsection III.B.(3), the term
``permitted investments'' means investments which: (i) Are either (A)
direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided that such obligations are backed
by the full faith and credit of the United States, or (B) have been
rated (or the Obligor has been rated) in one of the three highest
generic rating categories by a Rating Agency; (ii) are described in the
Pooling and Servicing Agreement; and (iii) are permitted by the Rating
Agency.
(4) Rights of the Trustee under the Pooling and Servicing
Agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship, Eligible Yield Supplement
Agreements, Eligible Swap Agreements meeting the conditions of
subsection II.A.(9) or other credit support arrangements with respect
to any obligations described in section III.B.(1).
However, notwithstanding the foregoing, the term ``Issuer'' does
not include any investment pool unless: (i) The assets of the type
described in paragraphs (a)-(e) and paragraph (g) (excluding fractional
interests in any of the obligations described in paragraph (f) of this
subsection B.(1)) of section III.B.(1) which are contained in the
investment pool have been included in other investment pools, (ii)
Securities evidencing interests in such other investment pools have
been rated in one of the three (or in the case of Designated
Transactions, four) highest generic rating categories by a Rating
Agency for at least one year prior to the plan's acquisition of
Securities pursuant to this exemption, and (iii) Securities evidencing
interests in such other investment pools have been purchased by
investors other than plans for at least one year prior to the plan's
acquisition of such Securities pursuant to this exemption. For purposes
of this paragraph, Securities evidencing interests in investment pools
containing assets described in Section III.B.(1)(f) are rated in one of
the three highest generic rating categories by a Rating Agency at the
time of such acquisition.
C. ``Underwriter'' means:
(1) The Applicants,
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the Applicants, or
(3) Any member of an underwriting syndicate or selling group of
which a person described in Section III.C.(1) or (2) is a manager or
co-manager with respect to the Securities.
D. ``Sponsor'' means the entity that organizes an Issuer by
depositing obligations therein in exchange for Securities.
E. ``Master Servicer'' means the entity that is a party to the
Pooling and Servicing Agreement relating to assets of the Issuer and is
fully responsible for servicing, directly or through Subservicers, the
assets of the Issuer.
F. ``Subservicer'' means an entity which, under the supervision of
and on behalf of the Master Servicer, services loans contained in the
Issuer, but is not a party to the Pooling and Servicing Agreement.
G. ``Servicer'' means any entity which services loans contained in
the Issuer, including the Master Servicer and any Subservicer.
H. ``Trust'' means an Issuer, which is a trust (including an owner
trust, grantor trust or a REMIC or FASIT which is organized as a
Trust).
I. ``Trustee'' means the Trustee of any Trust, which issues
Securities, and also includes an Indenture Trustee. ``Indenture
Trustee'' means the Trustee appointed under the indenture pursuant to
which the subject Securities are issued, the rights of holders of the
Securities are set forth and a security interest in the Trust assets in
favor of the holders of the Securities is created.
[[Page 13255]]
The Trustee or the Indenture Trustee is also a party to or beneficiary
of all the documents and instruments transferred to the Issuer, and as
such, has both the authority to, and the responsibility for, enforcing
all the rights created thereby in favor of holders of the Securities,
including those rights arising in the event of default by the Servicer.
J. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, an Issuer. Notwithstanding the foregoing, a
person is not an insurer solely because it holds Securities
representing an interest in an Issuer, which are of a class
subordinated to Securities representing an interest in the same Issuer.
K. ``Obligor'' means any person, other than the Insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the Issuer. Where an Issuer contains Qualified Motor
Vehicle Leases or Qualified Equipment Notes Secured by Leases,
``Obligor'' shall also include any owner of property subject to any
lease included in the Issuer, or subject to any lease securing an
obligation included in the Issuer.
L. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
M. ``Restricted Group'' with respect to a class of Securities
means:
(1) Each Underwriter;
(2) Each Insurer;
(3) The Sponsor;
(4) The Trustee;
(5) Each Servicer;
(6) Any Obligor with respect to obligations or receivables included
in the Issuer constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the Issuer, determined
on the date of the initial issuance of Securities by the Issuer;
(7) Each counterparty in an Eligible Swap Agreement; or
(8) Any Affiliate of a person described in subsections III.M.(1)-
(7).
N. ``Affiliate'' of another person includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
O. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
P. A person will be ``independent'' of another person only if:
(1) Such person is not an Affiliate of that other person; and
(2) The other person, or an Affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to assets of such person.
Q. ``Sale'' includes the entrance into a Forward Delivery
Commitment, provided:
(1) The terms of the Forward Delivery Commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the Forward
Delivery Commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
R. ``Forward Delivery Commitment'' means a contract for the
purchase or sale of one or more Securities to be delivered at an agreed
future settlement date. The term includes both mandatory contracts
(which contemplate obligatory delivery and acceptance of the
Securities) and optional contracts (which give one party the right but
not the obligation to deliver Securities to, or demand delivery of
Securities from, the other party).
S. ``Reasonable Compensation'' has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
T. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the Obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) The Servicer may not charge the fee absent the act or failure
to act referred to in subsection III.T.(1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the Pooling and Servicing Agreement; and
(4) The amount paid to investors in the Issuer will not be reduced
by the amount of any such fee waived by the Servicer.
U. ``Qualified Equipment Note Secured By a Lease'' means an
equipment note:
(1) Which is secured by equipment which is leased;
(2) Which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) With respect to which the Issuer's security interest in the
equipment is at least as protective of the rights of the Issuer as the
Issuer would have if the equipment note were secured only by the
equipment and not the lease.
V. ``Qualified Motor Vehicle Lease'' means a lease of a motor
vehicle where:
(1) The Issuer owns or holds a security interest in the lease;
(2) The Issuer owns or holds a security interest in the leased
motor vehicle; and
(3) The Issuer's security interest in the leased motor vehicle is
at least as protective of the Issuer's rights as the Issuer would
receive under a motor vehicle installment loan contract.
W. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a Sponsor, a Servicer and the Trustee establishing a
Trust. ``Pooling and Servicing Agreement'' also includes the indenture
entered into by the Issuer and the Indenture Trustee.
X. ``Rating Agency'' means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.; Moody's Investors Service,
Inc.; Fitch Ratings; DBRS Limited; or DBRS, Inc.; or any successors
thereto.
Y. ``Capitalized Interest Account'' means an Issuer account: (i)
which is established to compensate securityholders for shortfalls, if
any, between investment earnings on the Pre-Funding Account and the
interest rate payable under the Securities; and (ii) which meets the
requirements of paragraph (c) of subsection III.B.(3).
Z. ``Closing Date'' means the date the Issuer is formed, the
Securities are first issued and the Issue's assets (other than those
additional obligations which are to be funded from the Pre-Funding
Account pursuant to subsection II.A.(7)) are transferred to the Issuer.
AA. ``Pre-Funding Account'' means an Issuer account: (i) which is
established to purchase additional obligations, which obligations meet
the conditions set forth in paragraphs (a)-(g) of subsection II.A.(7);
and (ii) which meets the requirements of paragraph (c) of subsection
III.B.(3).
BB. ``Pre-Funding Limit'' means a percentage or ratio of the amount
allocated to the Pre-Funding Account, as compared to the total
principal amount of the Securities being offered, which is less than or
equal to 25 percent.
CC. ``Pre-Funding Period'' means the period commencing on the
Closing Date and ending no later than the earliest to occur of: (i) The
date the amount on
[[Page 13256]]
deposit in the Pre-Funding Account is less than the minimum dollar
amount specified in the Pooling and Servicing Agreement; (ii) the date
on which an event of default occurs under the Pooling and Servicing
Agreement; or (iii) the date which is the later of three months or 90
days after the Closing Date.
DD. ``Designated Transaction'' means a securitization transaction
in which the assets of the Issuer consist of secured consumer
receivables, secured credit instruments or secured obligations that
bear interest or are purchased at a discount and are: (i) Motor
vehicle, home equity and/or manufactured housing consumer receivables;
and/or (ii) motor vehicle credit instruments in transactions by or
between business entities; and/or (iii) single-family residential,
multi-family residential, home equity, manufactured housing and/or
commercial mortgage obligations that are secured by single-family
residential, multi-family residential, commercial real property or
leasehold interests therein. For purposes of this section III.DD., the
collateral securing motor vehicle consumer receivables or motor vehicle
credit instruments may include motor vehicles and/or Qualified Motor
Vehicle Leases.
EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if
purchased by or on behalf of the Issuer) an interest rate cap contract,
that is part of the structure of a class of Securities where the rating
assigned by the Rating Agency to any class of Securities held by any
plan is dependent on the terms and conditions of the swap and the
rating of the counterparty, and if such Security rating is not
dependent on the existence of the swap and rating of the counterparty,
such swap or cap shall be referred to as a ``Non-Ratings Dependent
Swap.'' With respect to a Non-Ratings Dependent Swap, each Rating
Agency rating the Securities must confirm, as of the date of issuance
of the Securities by the Issuer, that entering into an Eligible Swap
with such counterparty will not affect the rating of the Securities.
FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings
Dependent Swap:
(1) Which is denominated in U.S. dollars;
(2) Pursuant to which the Issuer pays or receives, on or
immediately prior to the respective payment or distribution date for
the class of Securities to which the swap relates, a fixed rate of
interest, or a floating rate of interest based on a publicly available
index (e.g., LIBOR or the U.S. Federal Reserve's Cost of Funds Index
(COFI)), with the Issuer receiving such payments on at least a
quarterly basis and obligated to make separate payments no more
frequently than the counterparty, with all simultaneous payments being
netted;
(3) Which has a notional amount that does not exceed either: (i)
The principal balance of the class of Securities to which the swap
relates, or (ii) the portion of the principal balance of such class
represented solely by those types of corpus or assets of the Issuer
referred to in subsections III.B.(1), (2) and (3);
(4) Which is not leveraged (i.e., payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in subsection III.FF.(2), and the difference
between the products thereof, calculated on a one to one ratio and not
on a multiplier of such difference);
(5) Which has a final termination date that is either the earlier
of the date on which the Issuer terminates or the related class of
Securities is fully repaid; and
(6) Which does not incorporate any provision which could cause a
unilateral alteration in any provision described in subsections III.FF.
(1) through (4) without the consent of the Trustee.
GG. ``Eligible Swap Counterparty'' means a bank or other financial
institution which has a rating, at the date of issuance of the
Securities by the Issuer, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term
credit rating categories, utilized by at least one of the Rating
Agencies rating the Securities; provided that, if a swap counterparty
is relying on its short-term rating to establish eligibility under this
exemption, such swap counterparty must either have a long-term rating
in one of the three highest long-term rating categories or not have a
long-term rating from the applicable Rating Agency, and provided
further that if the class of Securities with which the swap is
associated has a final maturity date of more than one year from the
date of issuance of the Securities, and such swap is a Ratings
Dependent Swap, the swap counterparty is required by the terms of the
swap agreement to establish any collateralization or other arrangement
satisfactory to the Rating Agencies in the event of a ratings downgrade
of the swap counterparty.
HH. ``Qualified Plan Investor'' means a plan investor or group of
plan investors on whose behalf the decision to purchase Securities is
made by an appropriate independent fiduciary that is qualified to
analyze and understand the terms and conditions of any swap transaction
used by the Issuer and the effect such swap would have upon the credit
ratings of the Securities. For purposes of the exemption, such a
fiduciary is either:
(1) A ``qualified professional asset manager'' (QPAM),\ 16\ as
defined under Part V(a) of Prohibited Transaction Exemption (PTE) 84-
14, 49 FR 9494, 9506, (March 13, 1984), as amended by 70 FR 49305,
August 23, 2005);
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\16\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.,
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $85 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
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(2) An ``in-house asset manager'' (INHAM),\17\ as defined under
Part IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
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\17\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
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(3) A plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such Securities.
II. ``Excess Spread'' means, as of any day funds are distributed
from the Issuer, the amount by which the interest allocated to
Securities exceeds the amount necessary to pay interest to
securityholders, servicing fees and expenses.
JJ. ``Eligible Yield Supplement Agreement'' means any yield
supplement agreement, similar yield maintenance arrangement or, if
purchased by or on behalf of the Issuer, an interest rate cap contract
to supplement the interest rates otherwise payable on obligations
described in subsection III.B.(1). Such an agreement or arrangement may
involve a notional principal contract provided that:
(1) It is denominated in U.S. dollars;
(2) The Issuer receives on, or immediately prior to the respective
payment date for the Securities covered by such agreement or
arrangement, a fixed rate of interest or a floating rate of interest
based on a publicly available index (e.g., LIBOR or COFI), with the
Issuer receiving such payments on at least a quarterly basis;
(3) It is not ``leveraged'' as described in subsection III.FF. (4);
[[Page 13257]]
(4) It does not incorporate any provision which would cause a
unilateral alteration in any provision described in subsections III.JJ.
(1)-(3) without the consent of the Trustee;
(5) It is entered into by the Issuer with an Eligible Swap
Counterparty; and
(6) It has a notional amount that does not exceed either: (i) The
principal balance of the class of Securities to which such agreement or
arrangement relates, or (ii) the portion of the principal balance of
such class represented solely by those types of corpus or assets of the
Issuer referred to in subsections III.B. (1), (2) and (3).
Effective Date: If granted, and except as otherwise provided, this
proposed exemption will be effective as of February 4, 2004. The
exemptive relief, if granted, for investment pools consisting solely of
debt described in section III.B.(1)(f) will be effective as of February
27, 2009 and will expire on the later of: July 1, 2012; or the
expiration of the FDIC's Debt Guarantee Program, which is part of the
TLG Program.
Summary of Facts and Representations
1. Barclays Bank PLC is an authorized institution under the Banking
Act of 1987 in the United Kingdom and is regulated by the Bank of
England. As of December 31, 2007, Barclays Bank PLC (Consolidated
Balance Sheet) had approximately [pound]1,227,583,000,000 in assets and
[pound]31,821,000,000 in stockholders' equity. Barclays Bank PLC has
several affiliates that are broker-dealers or banks. Barclays Capital
Inc., a subsidiary of Barclays Bank PLC, is incorporated under the laws
of the State of Connecticut and is registered and regulated by the
Securities and Exchange Commission as a U.S. broker-dealer under
Section 15 of the Securities and Exchange Act of 1934, as amended. As
of June 30, 2008, Barclays Capital Inc. (Unaudited Consolidated Balance
Sheet) has approximately US$ 269,433,856,000 in assets and US$
2,518,536,000 in stockholders' equity.
2. Barclays Bank PLC and Barclays Capital Inc. (hereinafter
Barclays), alone or together with other broker-dealers, act as
underwriter or placement agent with respect to the sale of securities.
Barclays also may act as the manager or co-manager for a syndicate of
securities underwriters or selling group.
3. Barclays received authorization from the Department pursuant to
Prohibited Transaction Exemption (PTE) 96-62, 67 FR 44622 (July 3,
2002), that certain prohibited transaction provisions do not apply to
transactions substantially similar to transactions described in the
Underwriter Exemptions as described in its 2003 ``EXPRO'' authorization
request (File : E00342). See Final Authorization Number (FAN)
04-03E, February 4, 2004 (hereinafter FAN 04-03E). The information
contained in the administrative file for E00342 as well as the facts
and representations contained in FAN 04-03E also were considered and
relied upon by the Department for purposes of this notice.\18\ The
Underwriter Exemptions are a group of individual exemptions that
provide substantially identical relief for the servicing, management
and operation of certain asset-backed or mortgage-backed investment
pools and the acquisition, holding, sale or transfer by employee
benefit plans of certain securities representing interests in those
investment pools. These exemptions provide relief from certain of the
prohibited transaction restrictions of sections 406(a), 406(b) and
407(a) of the Employee Retirement Income Security Act of 1974, as
amended (ERISA or the Act) and from the taxes imposed by section
4975(a) and (b) of the Internal Revenue Code of 1986, as amended (the
Code), by reason of certain provisions of section 4975(c)(1) of the
Code.
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\18\ The Underwriter Exemptions, including PTE 2002-41, 67 FR
54487 (August 22, 2002) and PTE 2000-58, 65 FR 67765 (November 13,
2000), and PTE 97-34, 62 FR 39021 (July 21, 1997), were amended by
PTE 2007-05, 72 FR 13130 (March 20, 2007) and PTE 2008-08, 73 FR
27570 (May 13, 2008). Additional information about the Underwriter
Exemptions also is available in the notices of proposed exemption
with respect to each of the foregoing individual exemptions.
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4. The Applicants are requesting, among other things, individual
exemptive relief that would add senior unsecured debt guaranteed by the
Federal Deposit Insurance Corporation (FDIC) pursuant to its Temporary
Liquidity Guarantee Program (TLG Program) to the permissible assets of
an Issuer, which currently are restricted to certain secured
receivables, certain secured instruments, certain secured obligations
and guaranteed governmental mortgage pool certificates as defined in 29
CFR 2510.3-101(i)(2). If this proposed exemption is granted by the
Department, it would replace and expand the exemptive relief authorized
in FAN 04-03E.
5. The TLG Program was announced by the FDIC on October 14, 2008,
as an initiative to deal with the recent disruptions in the financial
markets that have impaired the ability of creditworthy companies to
issue commercial paper, particularly at maturities longer than 30 days.
The TLG Program is designed to encourage liquidity in the banking
system in order to ease lending to creditworthy businesses and
consumers.
6. One component of the TLG Program is the Debt Guarantee Program,
by which the FDIC will guarantee the payment of certain newly-issued
senior unsecured debt by entities described in 12 CFR 370.2(a) (i.e.,
insured depositary institutions, certain U.S. bank holding companies,
certain U.S. savings and loan holding companies, and certain affiliates
of an insured depositary institution that the FDIC designates as an
eligible entity). The FDIC's payment obligation is triggered by a
payment default rather than bankruptcy or receivership.
7. Under the TLG Program, effective as of December 6, 2008, the
term ``senior unsecured debt'' excludes any obligation with a stated
maturity of 30 days or less (including debt with a maturity of ``one
month''). The guarantee on any previously issued senior unsecured debt
instrument issued with a stated maturity of 30 days or less will expire
on the earlier of: (i) the date the issuer ``opts out'' pursuant to the
TLG Program, or the maturity date of the instrument.
8. The debt instruments covered by the TLG Program are unsecured
borrowings that: (i) Are evidenced by a written agreement or trade
confirmation; (ii) have a specific and fixed principal to be paid in
full on demand or on a date certain; (iii) are not contingent and
contain no embedded options, forwards, swaps or other derivatives; and
(iv) are not, by their terms, subordinated to any other liability. The
debt may pay interest at a fixed or floating rate. Any floating
interest rate must be based on a commonly used reference rate,
including a single index of a Treasury bill rate, the prime rate, or
the London Interbank Offered Rate (LIBOR). For more information about
the TLG Program, see the FDIC's final rule at 73 FR 72244 (November 26,
2008) \19\ and the FDIC Internet site at http://www.fdic.gov/.
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\19\ On March 4, 2009, the FDIC published an interim rule that
extends its guarantee to certain new issues of mandatory convertible
debt into common shares of the issuing entity at a specified date no
later than the expiration of the FDIC's guarantee. Because the
requested exemptive relief relates to pools of debt, the proposed
exemption would not apply to such mandatory convertible debt.
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9. Barclays represents that the debt covered by the TLG Program is
substantially similar to, and in some respects more secure, than
guaranteed governmental mortgage pool certificates. The applicant
states that although interest and principal payable pursuant to a
guaranteed governmental mortgage
[[Page 13258]]
pool certificate are guaranteed by an agency of instrumentality thereof
(e.g., Freddie Mac, Fannie Mae and Farmer Mac), such agencies are not
backed by the full faith and credit of the United States unlike the
FDIC. The full faith and credit backing is significant because it
represents an unconditional commitment from the United States to pay
interest on defaulted notes. The Applicant further represents that
because of the full faith and credit backing of the debt, there likely
also will be a ready market for these notes. In this regard, Barclays
states that plans already may invest directly in senior unsecured bank
debt under the TLG PROGRAM in accordance with investor-based
exemptions.\20\
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\20\ See, for example, PTE 84-14 and PTE 96-23, which are
referenced, respectively, in earlier footnotes to this proposed
exemption.
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10. The FDIC board announced on January 16, 2009, that it will soon
propose rule changes to its Temporary Liquidity Guarantee Program to
extend the maturity of the guarantee from three to up to 10 years where
the debt is supported by collateral and the issuance supports new
consumer lending.\21\ Barclays also has requested in its application
that the individual exemptive relief apply to such debt.
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\21\ See FDIC Press Release (PR) 4-2009. To date, the FDIC has
not published such a rule in the Federal Register. See the caption
in the preamble entitled ``Supplementary Information'' as to the
Department's solicitation of comments with respect to secured debt.
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11. The underwriter (i.e., Barclays, their affiliates, or a member
of an underwriting syndicate or selling group of which Barclays or
their affiliate is a manager or co-manager) will be a registered
broker-dealer that acts as underwriter or placement agent with respect
to the sale of securities.
12. The issuer is established under a pooling and servicing
agreement between a sponsor, a servicer and a trustee. The sponsor or
servicer of an issuer selects assets to be included in a trust,
partnership, special purpose corporation or limited liability company.
13. As a general matter, Securityholders will be entitled to
receive distributions of principal and/or interest, adjusted, in the
case of payments of interest, to a specified rate--the pass through
rate--which may be fixed or variable. These distributions will be made
monthly, quarterly, semi-annually, or at such other intervals and dates
as specified in the related prospectus or private placement memorandum.
14. The trustee of a trust is the legal owner of the obligations in
the trust and is responsible for enforcing all the rights in favor of
securityholders pursuant to the documents and instruments deposited in
the trust. The trustee will be an independent entity, and therefore
will be unrelated to any member of the Restricted Group (as defined in
section III.M.) other than an underwriter.
15. The servicer of an issuer administers the receivables on behalf
of the securityholders (e.g., notifying borrowers of amounts due on
receivables, maintaining payment records, and instituting foreclosure
or similar proceedings in the event of default). The issuer will be
maintained as an essentially passive entity. Therefore, both the plan
sponsor's discretion and the servicer's discretion with respect to
assets included in an issuer are severely limited.
16. The Applicants request that the exemptive relief, for bank debt
guaranteed under the TLG Program by the FDIC, if granted, be made
retroactive to February 27, 2009.
Notice to Interested Persons and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the proposed exemption to the address above,
within time frame set forth above, after the publication of this
proposed exemption in the Federal Register. All comments will be made
part of the record. Comments received will be available for public
inspection with the application at the address set forth above.
With respect to notification of interested persons, the Applicants
will distribute this notice of proposed exemption by first class mail
to an independent plan fiduciary for all ERISA pension plans for which
the Applicants and their subsidiaries provide fiduciary services. All
notifications will be mailed within three business days after
publication of the proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Exemption
Determinations, Employee Benefits Security Administration, US.
Department of Labor, telephone (202) 693-8532. (This is not a toll-free
number).
Individual Retirement Accounts (the IRAs) for Ralph Hartwell,
Harold Latin, Kenlon Johnson, Carol Johnson, Shanon Taylor, Michael
Ball, Dianne Barkas, Roy Barkas, Harry DeWall, Alice Pike, Steven
Larsen, C. Timothy Hopkins, Wayne Meuleman, Robert L. Miller, and
Richard T. Scott (Collectively, the Participants), Located in Idaho
Falls, Idaho, and Elsewhere [Exemption Application Numbers: D-11536
through D-11550]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 4975(c)(2) of the Code and in accordance with the
procedures set forth in 29 CFR Part 2570 Subpart B (55 FR 32836, 32847,
August 10, 1990). If the exemption is granted, the sanctions resulting
from the application of section 4975 of the Code, by reason of sections
4975(c)(1)(A), (D), and (E) of the Code, shall not apply to the cash
sales (the Sales) of certain shares of closely held common stock (the
Stock) of the Bank of Idaho Holding Company (the Company) by the IRAs
\22\ to the Participants, disqualified persons with respect to their
respective IRAs, provided that the following conditions are satisfied:
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\22\ Because each IRA has only one Participant, there is no
jurisdiction under 29 CFR Sec. 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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(a) The Sale of the Stock by each IRA is a one-time transaction for
cash;
(b) The terms and conditions of each Sale are at least as favorable
to each IRA as those obtainable in an arm's length transaction with an
unrelated party;
(c) Each IRA receives the fair market value of the Stock on the
date of the Sale as determined by a qualified, independent appraiser;
and
(d) Each IRAs does not pay any commissions, costs, or other
expenses in connection with each Sale.
Summary of Facts and Representations
1. The IRAs are individual retirement accounts, as described in
section 408(a) of the Code. Each of the IRAs is self-directed. Among
the assets of each IRA are shares of closely-held stock in the Company,
a one-bank holding company domiciled in the state of Idaho and
registered with the Board of Governors of the Federal Reserve System.
The sole asset of the Company is the Bank of Idaho (the Bank), located
in Idaho Falls, Idaho. The applicants describe the Participants, the
IRAs, and their holdings of the Stock as follows:
(a) The IRA of Ralph Hartwell, a Director of the Bank, currently
holds total assets of approximately $975,897.07, which includes 41,004
shares of the Stock. The IRA of Ralph Hartwell acquired all of the
Stock from the Company on August 28, 1985.
(b) The IRA of Harold Latin, a Director of the Bank, currently
holds total assets of approximately $28,703.51, which includes 1,071
shares of the Stock. The IRA of Harold Latin acquired all of the
[[Page 13259]]
Stock from the Company on August 28, 1985.
(c) The IRA of Kenlon Johnson, a Director of the Bank, currently
holds total assets of approximately $448,673.63, which includes 400
shares of the Stock. The IRA of Kenlon Johnson acquired all of the
Stock from the Company on July 12, 2004.
(d) The IRA of Carol Johnson, the spouse of Kenlon Johnson,
currently holds total assets of approximately $120,165.26, which
includes 1,000 shares of the Stock. The IRA of Carol Johnson acquired
all of the Stock from the Company on February 16, 2000.
(e) The IRA of Shanon Taylor, an employee of the Bank, currently
holds total assets of approximately $23,641.36, which includes 910
shares of the Stock. The IRA of Shanon Taylor is a Roth IRA that
acquired all of the Stock from the Company on November 15, 1996.
(f) The IRA of Michael Ball currently holds total assets of
approximately $27,438.54, which includes 1,050 shares of the Stock. The
IRA of Michael Ball acquired all of the Stock from the Company on
January 18, 1999.
(g) The IRA of Dianne Barkas currently holds total assets of
approximately $162,479.85, which includes 6,380 shares of the Stock.
The IRA of Dianne Barkas acquired all of the Stock from the Company on
August 28, 1985.
(h) The IRA of Roy Barkas currently holds total assets of
approximately $83,554.74, which includes 3,262 shares of the Stock. The
IRA of Roy Barkas acquired all of the Stock from the Company on August
28, 1985.
(i) The IRA of Harry DeWall currently holds total assets of
approximately $419,921.88, which includes 10,000 shares of the Stock.
The IRA of Harry DeWall acquired all of the Stock from the Company on
September 11, 1999.
(j) The IRA of Alice Pike currently holds total assets of
approximately $36,165.72, which includes 1,117 shares of the Stock. The
IRA of Alice Pike acquires all of the Stock from the Company on
September 28, 2000.
(k) The IRA of Steven Larsen currently holds total assets of
approximately $792,100.40, which includes 3,877 shares of the Stock.
The IRA of Steven Larsen acquired all of the Stock from the Company on
August 28, 1985.
(l) The IRA of C. Timothy Hopkins currently holds total assets of
approximately $488,139.96, which includes 2,000 shares of the Stock.
The IRA of C. Timothy Hopkins acquired all of the Stock from the
Company on September 11, 1999.
(m) The IRA of Wayne Meuleman currently holds total assets of
approximately $42,651.09, which includes 1,680 shares of the Stock. The
IRA of Wayne Meuleman acquired all of the Stock from the Company on
August 28, 1985.
(n) The IRA of Robert L. Miller currently holds total assets of
approximately $39,816.46, which includes 1,543 shares of the Stock. The
IRA of Robert L. Miller acquired all of the Stock from the Company on
August 28, 1985.
(o) The IRA of Richard T. Scott currently holds total assets of
approximately $17,209.21, which includes 653 shares of the Stock. The
IRA of Richard T. Scott acquired all of the Stock from the Company on
February 16, 2000.
The applicants represent that the Bank is the custodian for all of
the IRAs, except that: (i) The custodian of the IRA of Kenlon Johnson
is Wachovia Securities (Wachovia); (ii) the custodian of the IRA of
Michael Ball is TD Ameritrade Institutional (TD Ameritrade); (iii) the
custodian of the IRA of Steven Larsen is Merrill Lynch Pierce Fenner &
Smith (Merrill Lynch); and (iv) the custodian of the IRA of C. Timothy
Hopkins is Raymond James Financial Services, Inc (Raymond James).
Wachovia, TD Ameritrade, Merrill Lynch, and Raymond James are all
national brokerage firms.
2. The applicants request an administrative exemption for the Sale
of the Stock by each individual IRA to its respective Participant. The
applicants also represent that the IRAs acquired the Stock directly
from the issuer (i.e., the Company).\23\ Prior to January 1, 2007, the
applicants represent that the Company was a Subchapter C corporation.
The applicants state that business and income tax considerations caused
the Company to elect to be taxed as a Subchapter S corporation pursuant
to the Code, effective on January 1, 2007. The applicants further
represent that, while section 1361(c)(2)(vi) of the Code permits an IRA
to be an eligible shareholder in a bank holding company upon the
company's conversion to a Subchapter S corporation, the applicants
nevertheless remain liable for unrelated business tax income (UBTI) in
their respective IRAs subsequent to the conversion, which negatively
impacts the accounts. Accordingly, the applicants seek to effectuate
the Sale of the Stock from their IRAs.\24\ The applicants also
represent that the acquisition of the Stock by each IRA was done for
investment purposes and that, in fact, each IRA made a profit on its
original investment.
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\23\ The Department notes that, to the extent that the Company
or the other sellers were not disqualified persons with respect to
the IRAs under section 4975(e) of the Code, the purchase of the
Stock would not have constituted a prohibited transaction under
section 4975(c)(1) of the Code. Accordingly, to the extent that
there were violations of section 4975(c)(1) of the Code with respect
to the purchases and holdings of the Stock by the IRAs, the
Department is extending no relief for these transactions.
Further, the purchase and holding of the Stock by the IRAs whose
Participants are officers or directors of the Company and/or the
Bank raises questions under section 4975(c)(1)(D) and (E) of the
Code depending on the degree (if any) of the IRA Participant's
interest in the transaction. Section 4975(c)(1)(D) and (E) of the
Code prohibits the use by or for the benefit of a disqualified
person of the income or assets of a plan and prohibits a fiduciary
from dealing with the income or assets of a plan in his own interest
or for his own account. Those IRA Participants who are officers and/
or directors of the Company or of the Bank, may have had interests
in the transactions which affected their best judgment as
fiduciaries of their IRAs. In such circumstances, the transactions
may have violated sections 4975(c)(1)(D) and (E) of the Code. See
Advisory Opinion 90-20A (June 15, 1990). Accordingly, to the extent
that there were violations of section 4975(c)(1)(D) and (E) of the
Code with respect to the purchases and holdings of the Stock by the
IRAs, the Department is extending no relief for these transactions.
\24\ Section 4975(d)(16) of the Code provides a statutory
exemption from the prohibited transaction provisions of the Code for
the sale of stock held by a trust which constitutes an individual
retirement account under section 408(a) of the Code to the
individual for whose benefit such account is established, provided
that: (i) Such stock is in a bank (as defined in section 581 of the
Code) or a depository institution holding company (as defined in
section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1)); (ii) such stock is held by such trust as of the date of
the enactment of this paragraph; (iii) such sale is pursuant to an
election under section 1362(a) of the Code by such bank or company;
(iv) such sale is for fair market value at the time of sale (as
established by an independent appraiser) and the terms of the sale
are otherwise at least as favorable to such trust as the terms that
would apply on a sale to an unrelated party; (v) such trust does not
pay any commissions, costs, or other expenses in connection with the
sale; and (vi) the stock is sold in a single transaction for cash
not later than 120 days after the S corporation election is made.
The applicants represent that, because the Stock of the Company
was not sold within 120 days of the Company's S Corporation election
on January 1, 2007, the proposed Sales of the Stock would not
qualify for exemptive relief under section 4975(d)(16) of the Code.
The applicants further represent that advisors to the Company at the
time of the Subchapter S election were unaware of the negative
income tax ramifications of the election on the IRA holders, and did
not inform the holders that the election had been made. The
applicants also represent that, had the IRA holders been made aware
of the election, the IRA holders would have taken action consistent
with the statutory exemption. Accordingly, the applicants have
applied to the Department for an administrative exemption under
section 4975(c)(2) of the Code for the proposed Sale of the Stock.
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3. The Stock was initially appraised by the valuation firm of
Southard Financial, which is located in Memphis, Tennessee. In an
appraisal report dated October 9, 2008, Southard Financial
[[Page 13260]]
offered its opinion of the fair market value of the Stock as of August
31, 2008. The appraisal report was signed by Mr. Douglas K. Southard
(Mr. Southard), Mr. David A. Harris (Mr. Harris), and Mr. Mark A.
Orndorff (Mr. Orndorff), each of whom is an accredited appraiser with
the firm. Mr. Southard, Mr. Harris, and Mr. Orndorff (collectively, the
Appraisers) each represent that they are full-time, qualified
appraisers and are senior members of the American Society of Appraisers
(ASA). In addition, Mr. Southard and Mr. Harris, as principals of
Southard Financial, represent that they and their firm are independent
of, and unrelated to, the Participants, the Company, and the Bank.
In arriving at a value for the Stock, the Appraisers utilized a
combined valuation methodology, according weight to both the income
approach and the market approach (in the latter approach, the
Appraisers took into account the price/book valuation method, the
price/earnings method, and the prior transactions method). Applying
these combined methodologies, the Appraisers arrived at a per share
value for the Stock of $23.82. In this connection, the Appraisers
determined that, because there is often local demand for the ownership
of closely held community bank stock (as opposed to other businesses in
a local market), no discount for a lack of marketability of the Stock
should be taken in the appraisal. The Appraisers rounded the $23.82
figure for the value of the Stock to $23.80 to reflect what they
believed was the imprecision inherent in the various assumptions used
in the fair market value determination.
Applying the $23.80 per share valuation, the aggregate fair market
value of the Stock held by the respective IRAs of the Participants as
of August 31, 2008 is reflected in the following table:
----------------------------------------------------------------------------------------------------------------
Fair market Percentage of
Number of value of the total IRA
Individual retirement account (IRA) of shares of stock in each assets
stock held in IRA as of 8/ represented by
each IRA 31/2008 the stock
----------------------------------------------------------------------------------------------------------------
Ralph Hartwell.................................................. 41,004 $975,895.20 99.99
Harold Latin.................................................... 1,071 25,489.80 88.80
Kenlon Johnson.................................................. 400 9,520 2.12
Carol Johnson................................................... 1,000 23,800 19.81
Shanon Taylor................................................... 910 21,658 91.61
Michael Ball.................................................... 1,050 24,990 91.08
Dianne Barkas................................................... 6,380 151,844 93.45
Roy Barkas...................................................... 3,262 77,635.60 92.92
Harry DeWall.................................................... 10,000 238,000 56.68
Alice Pike...................................................... 1,117 26,584.60 73.51
Steven Larsen................................................... 3,877 92,272.60 11.65
C. Timothy Hopkins.............................................. 2,000 47,600 9.75
Wayne Meuleman.................................................. 1,680 39,984 93.75
Robert L. Miller................................................ 1,543 36,723.40 92.23
Richard T. Scott................................................ 653 15,541.40 90.31
----------------------------------------------------------------------------------------------------------------
4. The applicants represent that the combined Stock held by each of
the IRAs (i.e., 75,947 shares) represents only 5.75% of the 1,319,757
shares of the Stock of the Company that are currently outstanding. The
applicants also represent that the proposed Sales of the Stock by the
IRAs will not result in any of the Participants becoming holders of 10%
or more of the shares of the Company, nor will the Sales give any of
the Participants a controlling interest in the Company. The applicants
further state that, if the Department grants an administrative
exemption for the proposed Sales, an updated appraisal will be
undertaken by a qualified, independent appraiser to determine the fair
market value of the Stock as of the date that the Sales are
consummated.
5. The applicants represent that the transactions are
administratively feasible because each Sale will be a one-time
transaction for cash. The applicants also represent that the
transactions are in the interests of the IRAs because each IRA will
dispose of all its shares of the Stock at a price which equals the
Stock's fair market value at the time of the Sale. As a result, greater
diversification of the IRAs' assets will be achieved by reinvesting the
proceeds of the Sales in other assets. Furthermore, the applicants
represent that the transactions are protective of the rights of the
Participants and beneficiaries of the IRAs because each IRA will
receive the fair market value of the Stock currently owned by each IRA
as of the date of the Sale, as determined by a qualified, independent
appraiser. Finally, the IRAs will not incur any commissions, costs, or
other expenses as a result of the Sales.
6. In summary, the applicants represent that the transactions will
satisfy the statutory criteria of section 4975(c)(2) of the Code
because: (a) The Sale of the Stock by each IRA is a one-time
transaction for cash; (b) The terms and conditions of each Sale is at
least as favorable to each IRA as those obtainable in an arm's length
transaction with an unrelated party; (c) Each IRA receives the fair
market value of the Stock on the date of the Sale as determined by a
qualified, independent appraiser; and (d) Each IRAs does not pay any
commissions, costs, or other expenses in connection with each Sale.
Notice To Interested Persons: Because the applicants are the only
participants in the IRAs, it has been determined that there is no need
to distribute this notice of proposed exemption (the Notice) to
interested persons. Comments and requests for a hearing are due thirty
(30) days after publication of the Notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department,
telephone (202) 693-8339. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his
[[Page 13261]]
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with section 404(a)(1)(b) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 20th day of March, 2009.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E9-6619 Filed 3-25-09; 8:45 am]
BILLING CODE 4510-29-P