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Secretary of Labor Thomas E. Perez
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EBSA Notices

D–11456, PNC Financial Services Group, Inc.; and D–11602, State Street Bank and Trust Company, et al.   [4/30/2010]
[PDF]
FR Doc 2010-10065
[Federal Register: April 30, 2010 (Volume 75, Number 83)]
[Notices]               
[Page 22853-22863]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap10-128]                         


[[Page 22853]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
D-11456, PNC Financial Services Group, Inc.; and D-11602, State 
Street Bank and Trust Company, et al.

AGENCY: Employee Benefits Security Administration, Department of 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.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

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.

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(s)), as defined, below, in Section III, by certain employee 
benefit plans (Client Plan(s)) for which PNC (PNC or the Applicant), as 
defined below, serves as a fiduciary and is a party in interest with 
respect to such Client Plan, the restrictions of section 406(a)(1)(D) 
and 406(b) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(D) through 
(F) \1\ of the Code, shall not apply, effective February 1, 2008 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 and its affiliate PNC Capital 
Advisors, Inc. (PCA) from the Funds in connection with the investment 
by the Client Plans in shares of the Funds where PNC or its affiliate 
PCA acts as an investment advisor for such Funds; and
    (b) the receipt of fees by PNC or its affiliates from the Funds in 
connection with providing certain secondary services, as defined below, 
(Secondary Services) to such Funds in which a Client Plan invests; 
provided that the conditions of Section II are met.

Section II--General Conditions

    (a) PNC, which serves 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 or its affiliates 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 by 
the Funds to PNC under the terms of an investment management agreement 
adopted in accordance with section 15 of the Investment Company Act of 
1940 (the ``1940 Act'');
    (2) A Client Plan invested in the Funds pays an investment 
management fee or similar fee based on total Client Plan assets from 
which a credit has been subtracted representing such Client Plan's pro 
rata share of investment advisory fees paid by the Funds to PNC (the 
Subtraction Fee Method). If, during any fee period for which a Client 
Plan has prepaid its investment management or similar fee, the Client 
Plan purchases shares of such Fund, the requirement of this Section 
II(a)(2) shall be deemed to have been 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 plan 
assets invested in shares of such Fund

[[Page 22854]]

(i) is anticipated and subtracted from the prepaid fee at the time of 
payment of such fee, (ii) is returned to the 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 have been 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 ``credit'' \2\ (the 
Credit Fee Method) of such Plan's proportionate share of all fees 
charged to the Funds by PNC for investment advisory or similar 
services, on a date which is no later than one business day after 
receipt of such fees by PNC from the Fund. The crediting of all such 
fees to such Client Plan by PNC is audited by an independent accountant 
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 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 at the time the transaction, as 
defined, below in Section III, 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 or sell shares of the Funds from or 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 the purchase of 
such shares and at the time of such sale;
    (e) The combined total of all fees received by PNC for the 
provision of services by PNC to Client Plans and to Funds in which a 
Client Plan invests, 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 1940 Act in connection with the transactions;
    (g) No Client Plan is an employee benefit plan sponsored or 
maintained by PNC;
    (h) A second fiduciary (Second Fiduciary), as defined below in 
Section III, who is acting on behalf of a Client Plan receives, in 
advance of any initial investment by a Plan Client 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 a 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,
    (ii) Any Secondary Services to be paid by such Fund to PNC, and
    (iii) All other fees to be charged to or paid by the Client Plan 
and by such Fund;
    (3) The reason why PNC, acting as a fiduciary for such Client Plan, 
considers 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 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/or 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 in connection with services provided by PNC 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 to PNC for investment management advisory services 
or similar services; and
    (iii) Fees paid for Secondary Services 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, acting as fiduciary 
on behalf of such Client Plan, of a written notice of termination. A 
form (the Termination Form), as defined, below, in Section III(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.
    With respect to j(1)(i), (ii), and (iii) above, all such 
investments and fees shall be terminable at will by the Second 
Fiduciary acting on behalf of such Client Plan.
    (2) The instructions for the Termination Form must include the 
following information:
    (i) The authorization, described above in Section II(i), is 
terminable at will by the Second Fiduciary acting on behalf of a Client 
Plan, without penalty to the Client Plan, upon receipt by PNC of 
written notice from such Second Fiduciary; and
    (ii) Failure by such Second Fiduciary to return the Termination 
Form will be deemed to be an approval by the Second Fiduciary and will 
result in the continued authorization, as described above, in Section 
II(i) of PNC to engage in the transactions described in this proposed 
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 such 
Fund to PNC for any investment advisory service or similar service that 
PNC provides to a Fund over an existing rate for such service or method 
of determining the fee for such service, which had been authorized by 
the Second Fiduciary for such Client Plan, in accordance with Section 
II(i), above, PNC, at least thirty (30) days in advance of the 
implementation of such change and/or such increase, provides 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

[[Page 22855]]

another or increase in fee) to the Second Fiduciary of each Client Plan 
affected by such change from one fee method to another fee method or 
increase in 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).
    (l) In the event of:
    (i) A proposed addition of a Secondary Service for which an 
additional fee is charged; or
    (ii) A proposed increase in the rate of any fee paid by a Fund to 
PNC for any Secondary Service, or
    (iii) A proposed increase in the rate of any fee paid for Secondary 
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 
will at least thirty (30) days in advance of the implementation of such 
fee increase or additional service for which an additional fee is 
charged or a decrease in the number or kind of services being 
performed, 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 or the decrease in the number or 
kind of services) 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 or decreasing the number or kind of 
services being performed. 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 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;
    (3) A copy of the annual financial disclosure report which includes 
information about Fund portfolios, as well as the audit findings of an 
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.
    (o) PNC maintains for a period of six (6) years the records 
necessary to enable the persons described, below, in Section II(p) 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 II(p), below.
    (p)(1) Except as provided in Section II(p)(2) and notwithstanding 
any provisions of section 504(a)(2) of the Act, the records referred to 
in Section II(o) 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 II(p)(1)(ii) and (iii) 
shall be authorized to examine trade secrets of PNC, or commercial or 
financial information which is privileged or confidential.

Section III--Definitions

    For purposes of this exemption:
    (a) The term ``PNC'' means The PNC Financial Services Group, Inc., 
and any affiliate thereof as defined below in paragraph (b) of this 
section.
    (b) 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.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Client Plan'' means any employee benefit plan as 
defined in section 3(3) of the Act; as well as Keogh plans and 
individual retirement accounts, for which PNC is a fiduciary as defined 
in section 3(21) of the Act (excluding any employee benefit plans 
sponsored by PNC or its affiliates).
    (e) The term ``Fund'' or ``Funds'' shall mean the PNC Funds, Inc. 
or any other diversified open-end investment company or companies 
registered under the 1940 Act for which PNC serves as an investment 
advisor, but not sub-advisor, and for which PNC may serve as a 
custodian, dividend disbursing agent, shareholder servicing agent, 
transfer agent, fund accountant, or provide some other ``Secondary 
Service,'' as defined below in Section III which has been approved by 
such Funds.
    (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 Fund's prospectus and 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(ies),'' means a fiduciary of a 
Client Plan who is independent of and unrelated to PNC. For purposes of 
this exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to PNC if:
    (1) Such fiduciary, directly or indirectly controls, through one or 
more intermediaries, is controlled by, or is under common control with 
PNC;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary, is an officer, director, partner, or 
employee of PNC (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

[[Page 22856]]

any transaction described in this exemption.
    If an officer, director, partner, or employee of PNC (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 advisor, (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 charged to or paid by such Client Plan in connection 
with any of the transactions described in Section I above, then Section 
III(h)(2), above, shall not apply.
    (i) The term, ``Secondary Service(s),'' means a service which is 
provided by PNC to a Fund, including custodial, accounting, and/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:
    (1) PNC is open for conducting all or substantially or 
substantially all of its banking functions, and
    (2) The New York Stock Exchange (or any successor exchange) is open 
for trading.
    Effective Dates: If granted, this proposed exemption will be 
effective February 1, 2008.

Summary of Facts and Representations

    1. PNC is a bank holding company that owns or controls PNC Bank, 
National Association (PNC Bank, NA), PNC Bank, Delaware, and Yardville 
National Bank and a number of non-bank subsidiaries. PNC provides, 
through its subsidiaries, a wide variety of trust and banking services 
to individuals, corporations and institutions. Through its banking 
subsidiaries, PNC 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.
    On March 2, 2007, PNC acquired Mercantile Bankshares Corporation 
(Mercantile), the parent company of eleven Mercantile subsidiary banks 
(the Mercantile Subsidiary Banks). PNC merged the Mercantile Subsidiary 
Banks with and into PNC Bank, NA on September 14, 2007, pursuant to an 
application filed with and approved by the Office of the Comptroller of 
the Currency. Immediately after consummation of the merger, PNC Bank, 
NA transferred to PNC Bank, Delaware, nine Delaware branches previously 
held by two of the Mercantile Subsidiary Banks, pursuant to a Bank 
Merger Act application filed with and approved by the Federal Reserve 
Bank of Cleveland.
    2. After October 1, 2007, the Mercantile Funds Inc. became the 
Funds or the PNC Funds, Inc. The Funds are diversified open-end 
investment company or companies registered under the 1940 Act. Each of 
the individual Funds constitutes a distinct investment vehicle, which 
has its own prospectus or joint prospectus with one or more other 
Funds. The shares of each Fund represent proportionate interests in the 
assets of that Fund. The Funds have 14 individual funds that offer 
portfolios of equity, fixed income and money market investments. The 
Funds that will be available for investment in connection with the 
transactions described in this proposal include the following: Prime 
Money Market Fund, Government Money Market Fund, Limited Maturity Bond 
Fund, Total Return Bond Fund, Capital Opportunities Fund, International 
Equity Fund, Growth & Income Fund, Diversified Real Estate Fund, Equity 
Income Fund, and Equity Growth Fund.
    The overall management of the Funds, including the negotiation of 
investment advisory contracts, rests with the Board of Directors of the 
Funds. The Applicant represents that all of the Board's current 
Directors are independent of PNC and its affiliates.
    3. PNC, through its affiliate PCA, serves as the investment advisor 
to each Fund within the meaning of section 2(20) of the 1940 Act. Prior 
to September 17, 2007, PCA was called Mercantile Capital Advisors, Inc. 
PCA has retained unaffiliated sub-advisors to manage certain Funds. PNC 
represents that PCA pays for the fees charged by its sub-advisors so 
that such sub-advisor fees are not an additional expense for such 
Funds. PNC receives maximum gross investment advisory fees from each 
Fund that vary between .20% and 1.30% of the Fund's average net assets 
on a daily basis. These fees are subject to waivers and reimbursements 
and currently the maximum advisory fee charged is 1.06%. The Funds 
charge a Rule 12b-1 distribution fee of between .50% and a 1.00% with 
respect to their Class A and Class C shares. Client Plans invest only 
in Fund institutional shares which do not pay 12b-1 fees.
    PCA also serves as administrator for the Funds. As administrator, 
PCA maintains the Fund's office, prepares filings with state securities 
commissions, coordinates federal and state tax returns and performs 
other administrative functions. In its capacity as administrator, PCA 
is entitled to an administrative fee, computed daily and paid monthly. 
On February 1, 2008, the Fund began using service providers which are 
PNC affiliates. However, the custodian for the Client Plans is not a 
PNC affiliate.
    4. Employee benefit plans, as defined in section 3(3) of the Act, 
and plans, as defined in section 4975(e)(1) of the Code, as to which 
PNC serves as fiduciary, are the subject plans of the proposed 
transaction. PNC, through its subsidiaries and affiliates, serves as 
trustee, investment manager, and in other similar fiduciary capacities 
with respect to retirement plans qualified under 401(a) of the Code, 
individual retirement accounts (IRA) described in section 408 of the 
Code, and welfare and 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. The specific 
Client Plans of PNC for which this exemption is being requested are 
those to which PNC 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.
    5. As of June 30, 2007, PNC performed discretionary management 
services for over 940 employee benefit accounts with total assets in 
excess of $6.2 billion. These services include discretionary investment 
management programs under which PNC invests assets of Client Plans in 
securities, including shares of open-end investment companies (i.e., 
mutual funds) registered under the 1940 Act, the investment advisors to 
which may or may not be affiliated with PNC.
    When PNC is acting as discretionary trustee or investment manager, 
PNC has investment discretion over the Client Plan's assets and is 
responsible for implementing the Plan's investment discretion 
objectives within the guidelines established by the Plan sponsor or 
named fiduciary. PNC may serve as a Plan custodian, in which capacity 
it is responsible for maintaining custody over all or a portion of the 
Client Plan's assets, for providing trust accounting and valuation 
services, for asset and transaction reporting, and for execution and 
settlement of transactions.
    The Client Plans pay fees in accordance with fee schedules 
established or negotiated with PNC. Fees for custodian, trustee, and

[[Page 22857]]

investment management services are based on a percentage of assets in 
the account, subject to certain minimum fee amounts. PNC may also 
provide other services to a Client Plan, as selected by other Plan 
sponsors or named fiduciaries. Fees may be paid by the Client Plan or 
the Client Plan sponsor, depending on the particular circumstances. 
Where PNC provides discretionary investment management services for 
Client Plans, it may invest Plan assets 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 investment.
    6. Investments by Client Plans in the Funds occur through direct 
purchases of shares of the Funds on an ongoing basis. These investments 
are made in the institutional shares classes of the Funds, which are 
not subject to 12b-1 fees. There are no sales commissions, loads, or 
transaction fees imposed on the Client Plans for buying or selling 
shares of the Funds. The Funds may impose redemption fees not to exceed 
2% of the value of the shares redeemed, provided that such fees are 
imposed only in accordance with Rule 22c-2 of the 1940 Act and the 
conditions of PTE 77-4, 42 FR 18732, (April 8, 1977).
    7. 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.

Reliance on PTE 77-4

    8. PTE 77-4 provides an exemption from section 406 of the Act and 
section 4975 of the Code for a plan's purchase or sale of mutual fund 
shares where such fund's investment advisor: (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 PTE 77-4 prohibit the 
payment of commissions by a plan, limit the payment of redemption fees 
by such plan, prohibit the payment of double investment advisory fees, 
and require prior disclosure to and approval by a Second Fiduciary.
    In order to meet the condition of PTE 77-4 that a Client Plan does 
not pay duplicative fees for investment advisory services, PNC has not 
charged a Client Plan any direct fees for investment management 
services for assets that are invested in the Funds. With respect to 
such assets, these Client Plans have paid fees to PNC solely for non-
investment trust or custody services. The fees PNC has received for 
investment management of a Client Plan's assets that were invested in 
the Funds have come from the Funds in accordance with relevant 
investment advisory and sub-advisory agreements with such Fund. Where 
PNC is a fiduciary with respect to a Client Plan, the investment of 
that Client Plan's assets in a Fund advised by an affiliate of PNC 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.
    9. Client Plans have not paid any commissions or other sales 
charges in connection with their investments in the Funds, as required 
under PTE 77-4. In addition, PNC has satisfied certain conditions in 
PTE 77-4. These conditions include advance written disclosure of 
information to a Client Plan regarding the fees to be received by PNC 
from each Fund as well as advance written authorization from an 
independent and unrelated Second Fiduciary of such Client Plan for 
investment in the Fund. The Second Fiduciary is generally the Plan's 
named fiduciary or sponsoring employer, and in the case of an IRA, the 
Second Fiduciary is generally the owner of the IRA.
    10. PNC is requesting an exemption similar to PTE 77-4, with 
respect to the receipt of fees by PNC and related entities from the 
Funds for acting as investment advisor, as well as for providing non-
advisory Secondary Services. The requested exemption, however, contains 
two differences from PTE 77-4. First, beginning on February 1, 2008, 
use of a ``Termination Form'' took the place of the PTE 77-4 
requirement that an independent fiduciary approve any change in mutual 
fund fees--substituting a ``negative consent'' requirement for those 
fee changes in place of affirmative approval. Second, the requested 
exemption would permit a Credit Fee Method with respect to PNC's 
receipt of Plan and Fund-Level Fees. As a result, the requested 
exemption would allow three ways to deal with duplicative fee--a Client 
Plan may use the (a) Offset Fee Method, (b) Credit Fee Method, or (c) 
the Subtraction Fee Method.

Receipt of Fees Pursuant to the Fee Methods

    11. PNC will charge investment advisory fees to the Funds in 
accordance with the investment advisory agreement between PNC and the 
Funds, payable monthly. This agreement is approved annually by the 
independent members of the Board of Directors of the Funds, in 
accordance with the applicable provisions of the 1940 Act, and any 
subsequent changes in the gross fees will have to be approved by such 
Directors. These fees will not be increased without the approval of the 
shareholders of the affected Funds. PNC represents that as of February 
1, 2008, the following fee methods dealing with duplicative fees were 
in place: (a) The Offset Fee Method, (b) the Subtraction Fee Method, 
and (c) the Credit Fee Method,\3\ as described in Section II(a)(1), 
(a)(2), and (a)(3) of this proposed exemption.
---------------------------------------------------------------------------

    \3\ 77-4 for PNC's. 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 use of the Credit 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.

[[Page 22858]]

Subtraction Fee Method

    13. Under this method, PNC charges the 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 of Client Plan 
assets invested in the Funds and paid to PNC, including the Client 
Plan's share of any investment advisory fees paid by PNC to sub-
advisors, as reduced by any waiver or rebate by PNC of such fees to the 
Funds, such as a waiver or rebate due to state law or other limits on 
Fund expenses.\4\ The result is that the 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.
---------------------------------------------------------------------------

    \4\ While fees above a certain limit may be waived or rebated by 
PNC, as a technical matter, the Funds may pay the excess fees and 
then simultaneously receive a credit of the excess amount. For 
purposes of the fee structure described in this section, PNC intends 
to credit to Client Plans only the net fees that it receives, and 
not to credit any of the excess fees that have been rebated to the 
Funds.
---------------------------------------------------------------------------

    The credit under this Subtraction Fee Method and the Credit Fee 
Method, below, will not include the fees for ``Secondary Services'' 
payable by the Funds to PNC, because such services rendered at the Fund 
level will not be duplicative of any services provided directly to the 
Client Plan. The services to the Client Plan may involve maintaining 
custody over all or a portion of the Client Plan's assets (which may 
include Fund shares, but not the assets underlying the Fund shares), 
providing trust accounting, asset and transaction reporting, execution 
and settlement of transactions, processing benefit payments and loans, 
valuing loan assets, and producing statement and reports regarding 
overall plan holdings. PNC represents that these Plan-level services 
will be necessary regardless of whether such Client Plan's assets are 
invested in the Funds.

Credit Fee Method

    14. Under this method, PNC will charge standard (or negotiated) 
fees, as applicable to each Client Plan, for serving as trustee and/or 
investment manager. At the beginning of each month, and in no event 
later than one business day after the payment of investment advisory 
fees by the Funds to PNC for the previous month, PNC will pay a 
``credited dollar amount'' to a Client Plan that constituted its 
proportionate share of all investment advisory fees charged by PNC to 
the Funds for the previous month. The standard practice will be to 
reinvest this ``credited dollar amount'' in additional shares of the 
same Fund with respect to which the fees were credited. The additional 
shares so acquired will be 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 a Client Plan could request that a rebate be 
made in cash. The cash would be invested in a money market account 
pending investment direction from the investment officer for the 
account. PNC does not anticipate notifying Client Plans in each 
instance that they have the option to request that credits be made in 
cash rather than additional shares.
    15. PNC, as a trustee and investment manager for Client Plans in 
connection with the decision to invest Client Plan assets in the Funds, 
will monitor all fees paid by a Fund to PNC and third parties for 
services provided to the Fund, to ensure that there will not be any 
payment of ``double'' fees for duplicative services to the Fund.
    For each Client Plan, the combined total of all fees PNC receives 
directly and indirectly from Client Plans for the provision of services 
to the Plans and/or to the Funds will not be in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.

 Audit of the Credit Fee Method

    16. It is represented that there are sufficient safeguards to 
permit exemptive relief for the use by PNC of the Credit Fee Method. 
Accordingly, PNC will maintain a system of internal accounting controls 
for the rebating of investment advisory fees to Client Plans. 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 PNC; (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 time frame.
    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

    As described in Representation 3 above, on February 1, 2008, the 
Funds used PNC-affiliated service providers for secondary services. 
Accordingly, PNC requests an administrative exemption, effective as of 
February 1, 2008 for receipt of fees by PNC for the provision of 
Secondary Services to the Funds.

In the Interest of Client Plans

    17. 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

[[Page 22859]]

enables PNC, as investment manager, to better meet the investment goals 
and strategies of a Client Plan.

Protective of Client Plans

    18. 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.
    It is represented that PNC 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 III(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.
    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

    19. PNC 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.
    It is represented that the negative consent procedure, as described 
herein, 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 Client Plan 
could force PNC to transfer a Client Plan's investments out of a Fund.
    Under the negative consent procedure, as set forth herein, 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 advance 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 PCA that was previously 
disclosed in the Fund prospectus. In addition, each Second Fiduciary 
will receive advance notice of any additional Secondary Service for 
which a fee is charged and any increase of any rate of any fee paid for 
Secondary Services to PNC or an increase in a rate of any fee that 
results from a decrease 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 advance 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 advance 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 advance 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 fees or to 
the increase in the fees 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 and to the addition of 
services for which an additional fee is charged.
    20. In summary, the proposed transactions satisfy or will satisfy 
the statutory criteria of section 408(a) of ERISA for the following 
reasons:
    a. The Funds provide the Client Plans with an effective investment 
vehicle.
    b. Client Plan investments in the Funds and the payment of any fees 
by the Funds to PNC in connection with such investments will require an 
advance authorization in writing by the 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 the Second Fiduciary will be 
terminable at will by that fiduciary, without penalty to the Client 
Plan, within one business day following receipt by PNC of written 
notice of termination from the fiduciary on a form expressly providing 
an election to terminate the authorization,

[[Page 22860]]

which will be supplied to the Second Fiduciary no less than annually, 
or in any other written notice of termination.
    d. No sales commissions will be paid by the Client Plans in 
connection with the acquisition or sale of shares of the Funds. 
Redemption fees not to exceed two percent (2%) of the value of the 
shares redeemed may be paid only in accordance with Rule 22c-2 of the 
1940 Act and the conditions imposed on such fees by PTE 77-4.
    e. All dealings among the Client Plans, any of the Funds, PCA, as 
well as PNC and its affiliates will be on a basis no less favorable to 
the Client Plans than such dealings with the other shareholders of the 
Funds.
    f. Plans investing in the Funds would pay only a single level of 
investment advisory-type fees with respect to their assets so invested, 
either receiving a rebate of the Fund investment advisory fees or not 
being charged the Plan-Level investment management fees.
    g. PNC will require annual audits by an independent accounting firm 
to verify that the Client Plan using the Credit Fee Method receives 
proper credits for the fees paid to the Funds.
    For Further Information Contact: Mr. Anh-Viet Ly of the Department, 
telephone (202) 693-8648. (This is not a toll-free number.)

 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, in accordance with the procedures set forth in 29 CFR Part 2570, 
Subpart B (55 FR 32836, 32847, August 10, 1990).\5\
---------------------------------------------------------------------------

    \5\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    If the proposed exemption is granted, the restrictions of sections 
406(a), 406(b)(1) and 406(b)(2) of the Act (or ERISA) and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (E) of the Code, shall not apply as of 
December 22, 2009 to the cash sale of certain fixed income securities 
(the Securities) for an aggregate purchase price of $113,977,880.15 by 
the Quality D Short-Term Investment Fund (the Fund) to State Street, a 
fiduciary with respect to the Fund and a party in interest with respect 
to employee benefit plans (the Plans) invested, directly or indirectly, 
in the Fund, provided that the following conditions are met:
    (a) The sale was a one-time transaction for cash;
    (b) The Fund received an amount which was equal to the sum of (1) 
the aggregate current amortized cost of the Securities as of the date 
of the transaction plus (2) the aggregate accrued interest on the 
Securities through the date of the transaction, calculated at the 
applicable contract rate for each of the Securities;
    (c) The Fund did not bear any commissions, fees, transaction costs, 
or other expenses in connection with the sale;
    (d) The amount received by the Fund with respect to each of the 
Securities was no less than the fair market value of each such 
Security, based upon the closing price obtained from an independent 
pricing service, as of the close of business on the date prior to the 
date of the transaction;
    (e) State Street, as trustee of the Fund, determined that the sale 
of the Securities was appropriate for and in the best interests of the 
Fund, and the Plans invested, directly or indirectly, in the Fund, at 
the time of the transaction;
    (f) State Street took all appropriate actions necessary to 
safeguard the interests of the Fund and the Plans invested, directly or 
indirectly, in the Fund, in connection with the transaction;
    (g) State Street and its affiliates, as applicable, maintain, or 
cause to be maintained, for a period of six (6) years from the date of 
any covered transaction such records as are necessary to enable the 
person described below in paragraph (h)(1), to determine whether the 
conditions of this exemption have been met, except that:
    (1) No party in interest with respect to a Plan which engages in 
the covered transaction, other than State Street and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by sections 4975(a) and (b) of the Code, 
if such records are not maintained, or not available for examination, 
as required, below, by paragraph (h)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of State Street or its affiliates, as applicable, such records are lost 
or destroyed prior to the end of the six-year period.
    (h)(1) Except as provided, in paragraph (h)(2), and notwithstanding 
any provisions of subsections (a)(2) and (b) of section 504 of the Act, 
the records referred to in paragraph (g) are unconditionally available 
at their customary location for examination during normal business 
hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan that engages in the covered 
transaction, or any duly authorized employee or representative of such 
fiduciary;
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
covered transaction, or any authorized employee or representative of 
these entities; or
    (D) Any participant or beneficiary of a Plan that engages in the 
covered transaction, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described, above, in paragraphs (h)(1)(B)-
(D) shall be authorized to examine trade secrets of State Street or its 
affiliates, or commercial or financial information which is privileged 
or confidential; and
    (3) Should State Street refuse to disclose information on the basis 
that such information is exempt from disclosure, State Street shall, by 
the close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.
    Effective Date: If granted, this exemption will be effective as of 
December 22, 2009.

Summary of Facts and Representations

    1. State Street is a Massachusetts state-chartered trust company 
subject to regulation by the Massachusetts Division of Banks. As of 
December 31, 2009, State Street managed assets in excess of $1.9 
trillion. State Street provides a wide range of banking and fiduciary 
services to a broad array of clients, including employee benefit plans 
subject to the Act and plans subject to Section 4975 of the Code. State 
Street is a subsidiary of State Street Corporation, a financial holding 
company organized under the laws of Massachusetts.
    2. The Fund is a group trust that is exempt from federal income tax 
pursuant to Rev. Rul. 81-100. State Street serves as a trustee and 
investment manager for the Fund. The Fund is a short-term investment 
fund that values its assets based on their amortized cost, and seeks to 
maintain a constant unit value equal to $1.00. The Fund invests 
primarily in fixed income investments, including certificates of 
deposit, asset-backed securities, commercial paper, corporate notes, 
asset-backed

[[Page 22861]]

commercial paper, bank notes, time deposits and repurchase agreements. 
The Fund is maintained in connection with State Street's securities 
lending program, and it is maintained exclusively for the purposes of 
investing cash collateral generated by that program.
    3. As of December 21, 2009, the value of the Fund's portfolio was 
approximately $48,594,086,914. As of December 21, 2009, there were 
approximately 136 direct investors in the Fund, a substantial number of 
which were employee benefit plans or trusts subject to the Act, with 
the remaining investors being government-sponsored employee benefit 
plans, church-sponsored employee benefit plans and unaffiliated group 
trusts.\6\ No in-house Plan of State Street invested in the Fund. Of 
the ERISA-covered Plans investing in the Fund, none had a greater that 
20% interest (direct or indirect) therein.
---------------------------------------------------------------------------

    \6\ It is represented that section 408(b)(8) of the Act would 
apply to the investment by the ERISA-covered Plans in the Fund. 
Section 408(b)(8) of the Act provides a statutory exemption for any 
transactions between a plan and a common or collective trust fund 
maintained by a party in interest which is a bank or trust company 
supervised by a State or Federal agency if certain requirements are 
met.
---------------------------------------------------------------------------

    4. On December 22, 2009, the Fund held the following asset backed 
securities, which it valued at their amortized cost:

----------------------------------------------------------------------------------------------------------------
                                                                  Acquisition                         Maturity
              CUSIP No.                         Issuer               date      Original face value      date
----------------------------------------------------------------------------------------------------------------
78442GPR1............................  SLM Student Loan Trust..      08/19/05       $26,132,000.00      10/25/40
14041NCR0............................  Capital One Multi-Asset       03/02/06        22,581,000.00      12/16/13
                                        Execution.
161571BB9............................  Chase Issuance Trust....      02/21/06        64,371,000.00      04/15/13
78453VAA7............................  Superannuation Members        11/18/03         9,900,000.00      05/09/30
                                        Home.
                                                                              ---------------------
    Total............................  ........................  ............      $122,984,000.00  ............
----------------------------------------------------------------------------------------------------------------

The decision to invest in the Securities was made by State Street. 
Prior to each investment, State Street conducted an investigation of 
the potential investment, examining and considering the economic and 
other terms of the Securities. State Street represents that each 
investment in the Securities was consistent with the applicable 
investment policies and objectives of the Fund, including the Fund's 
desire to maintain a constant unit value equal to $1.00. At the time 
the Fund acquired each of the Securities, each Security was rated at 
least ``A-1+'' by Standard & Poor's Corporation and ``P-1'' by Moody's 
Investor Services, Inc. Based on its consideration of the relevant 
facts and circumstances, State Street states that it was prudent and 
appropriate for the Fund to acquire the Securities.\7\ State Street 
also represents that none of the issuers or sellers of the Securities 
were related to State Street.

    \7\ The Department is expressing no opinion in this proposed 
exemption regarding whether the acquisition and holding of the 
Securities by the Fund violated any of the fiduciary responsibility 
provisions of Part 4 of Title I of the Act. In this regard, the 
Department notes that section 404(a) of the Act requires, among 
other things, that a fiduciary of a plan act prudently, solely in 
the interest of the plan's participants and beneficiaries, and for 
the exclusive purpose of providing benefits to participants and 
beneficiaries when making investment decisions on behalf of a plan. 
Section 404(a) of the Act also states that a plan fiduciary should 
diversify the investments of a plan so as to minimize the risk of 
large losses, unless under the circumstances it is clearly prudent 
not to do so.
     Moreover, the Department is not providing any opinion as to 
whether a particular category of investments or investment strategy 
would be considered prudent or in the best interests of a plan as 
required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration of 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-1). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
---------------------------------------------------------------------------

    5. State Street represents that prior to December 22, 2009, the 
market value of the Securities had decreased and the Securities had 
been consistently trading below their amortized cost. In addition, 
market conditions with respect to the Securities reflected a diminished 
degree of liquidity with respect to the Securities.
    6. In view of the foregoing, State Street, as trustee of the Fund, 
determined that it would be appropriate and in the best interest of the 
Fund to sell each of the Securities to State Street at a price equal to 
the greater of (a) the fair market value of such Security (determined 
based on the closing price of such Security on the day prior to the 
date of the sale transaction, as obtained from an independent pricing 
service) or (b) the sum of (i) the Fund's current amortized cost of the 
applicable Security on the date of the sale transaction, plus (ii) 
accrued interest on the applicable Security through the date of the 
sale transaction, calculated at the applicable contract rate for such 
Security. State Street determined that such a sale would protect the 
Fund from any potential investment loss with respect to the Securities, 
enhance the liquidity of the Fund, be consistent with the Fund 
maintaining a constant unit value equal to $1.00, and alleviate any 
concerns the investors in the Fund might have regarding the foregoing 
matters. Finally, State Street determined that the purchase of the 
Securities would be permissible under applicable banking law.
    7. On December 21, 2009, prior to consummation of the transaction, 
State Street sent written notice to the designated representative of 
each of the investors having a direct interest in the Fund of State 
Street's intent to cause the Fund to sell the Securities to State 
Street. While such notice did not contemplate or require any response, 
it should be noted that this notice did not generate any negative 
reaction from any of the recipients thereof.
    8. State Street represents that on December 22, 2009, it purchased 
the Securities from the Fund for an aggregate lump sum cash payment of 
$113,977,880.15, which amount represented the sum of (a) the aggregate 
current amortized cost of the Securities ($113,959,596.43) on the date 
of the sale transaction plus (b) the aggregate accrued interest on the 
Securities through the date of the sale transaction, calculated at the 
applicable contract rate for each of the Securities ($18,283.72). Three 
of the four Securities had a current amortized cost equal to their face 
value. The fourth Security had a current amortized cost slightly less 
than the purchase price because it was

[[Page 22862]]

purchased on the secondary market at a discount to face value. The 
purchase price of each Security was determined as follows:

----------------------------------------------------------------------------------------------------------------
                                Face value as of
          CUSIP No.                 12/22/09          Amortized cost      Accrued interest       Net proceeds
----------------------------------------------------------------------------------------------------------------
78442GPR1...................       $26,132,000.00       $26,131,247.84           $12,917.07       $26,144,164.91
14041NCR0...................        22,581,000.00        22,581,000.00             1,999.25        22,582,199.25
161571BB9...................        64,371,000.00        64,371,000.00             3,418.65        64,374,418.65
78453VAA7...................           876,348.59           876,348.59               748.75           877,097.34
                             -----------------------------------------------------------------------------------
    Total...................       113,960,348.59       113,959,596.43            18,283.72       113,977,880.15
----------------------------------------------------------------------------------------------------------------

The contract rate used to calculate the applicable accrued interest for 
each Security was a floating rate based on a LIBOR-based formula that 
resets on a monthly or quarterly basis.

    9. Prior to its consummation of the foregoing transaction, State 
Street represents that it contacted Interactive Data Corporation (IDC), 
an independent pricing service, to obtain the closing price of each of 
the Securities on December 21, 2009 (the day preceding the date of the 
transaction) and determined that such closing price for each Security 
was less than the price State Street would pay for each such Security. 
The information provided by IDC was as follows:

------------------------------------------------------------------------
                                           Market
               CUSIP No.                   price      Fair market value
------------------------------------------------------------------------
78442GPR1.............................      83.5324       $21,828,058.47
14041NCR0.............................     99.30296        22,423,601.40
161571BB9.............................     99.54217        64,076,290.25
78453VAA7.............................      99.7209           873,902.70
                                       ---------------------------------
    Total.............................  ...........       109,201,852.82
------------------------------------------------------------------------

    10. State Street, as trustee of the Fund, believed that the sale of 
the Securities by the Fund to State Street was in the best interests of 
the Fund and the Plans invested, directly or indirectly, in the Fund, 
at the time of the transaction. State Street states that any sale of 
the Securities on the open market at that time would have produced 
losses for the Fund and for the participating investors in the Fund.
    11. State Street represents that the sale of the Securities by the 
Fund to State Street benefited the Plan investors in the Fund because 
the purchase price paid by State Street for each Security exceeded the 
fair market value of such Security. In addition, State Street 
represents that the transaction was a one-time sale for cash in 
connection with which the Fund did not bear any commissions, fees, 
transaction costs or other expenses. State Street further represents 
that it took all appropriate actions necessary to safeguard the 
interests of the Fund and its participating investors in connection 
with the sale of the Securities.
    Accordingly, State Street requests an administrative exemption from 
the Department with respect to the sale of the Securities by the Fund 
to State Street. If granted, the exemption will be effective as of 
December 22, 2009.
    12. In summary, State Street represents that the transaction 
satisfied the statutory criteria of section 408(a) of the Act and 
section 4975 of the Code because: (a) The sale of the Securities by the 
Fund to State Street was a one-time transaction for cash; (b) the Fund 
received an amount equal to the sum of (i) the aggregate current 
amortized cost of the Securities as of the date of the transaction, 
plus (ii) the aggregate accrued interest on the Securities through the 
date of the transaction, calculated at the applicable contract rate for 
each of the Securities, which amount was greater than the closing price 
of each of the Securities as of the close of business on the date 
immediately prior to the date of the sale transaction, as determined 
based on information obtained from IDC, an independent pricing service; 
(c) the Fund did not pay any commissions, fees, transaction costs, or 
other expenses with respect to the sale; (d) the amount received by the 
Fund with respect to each of the Securities was no less than the fair 
market value of each such Security as of the close of business on the 
date prior to the date of the transaction; and (e) State Street, as 
trustee of the Fund, determined that the sale of the Securities by the 
Fund to State Street was in the best interests of the Fund and the 
Plans invested, directly or indirectly, in the Fund, at the time of the 
transaction.
    For Further Information Contact: Mr. Brian Shiker of the 
Department, telephone (202) 693-8552. (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 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

[[Page 22863]]

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 26th day of April 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration.
[FR Doc. 2010-10065 Filed 4-29-10; 8:45 am]
BILLING CODE 4510-29-P