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Secretary of Labor Thomas E. Perez
Notice of Proposed Individual Exemption to Amend and Replace Prohibited Transaction Exemption (PTE) 99-15, Involving Salomon Smith Barney Inc., Located in New York, NY [Notices] [06/01/2000]

EBSA (Formerly PWBA) Federal Register Notice

Notice of Proposed Individual Exemption to Amend and Replace Prohibited Transaction Exemption (PTE) 99-15, Involving Salomon Smith Barney Inc., Located in New York, NY [06/01/2000]

[PDF Version]

Volume 65, Number 106, Page 35138-35144


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PENSION AND WELFARE BENEFITS ADMINISTRATION

[Application Nos. D-10809 and D-10865]

 
Notice of Proposed Individual Exemption to Amend and Replace 
Prohibited Transaction Exemption (PTE) 99-15, Involving Salomon Smith 
Barney Inc., Located in New York, NY

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed individual exemption to modify and replace 
PTEs 99-15.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed and replacement 
individual exemption which, if granted, would amend PTE 99-15 (64 FR 
1648, April 5, 1999), an exemption granted to Salomon Smith Barney. PTE 
99-15 relates to the operation of the TRAK Personalized Investment 
Advisory Service product (the TRAK Program) and the Trust for 
Consulting Group Capital Markets Funds (the Trust). If granted, the 
proposed exemption would affect participants and beneficiaries of and 
fiduciaries with respect to employee benefit plans (the Plans) 
participating in the TRAK Program.

EFFECTIVE DATE: If granted, the proposed amendment will be effective as 
of April 1, 2000.

DATES: Written comments and requests for a public hearing should be 
received by the Department on or before July 17, 2000.

ADDRESSES: All written comments and requests for a public hearing 
(preferably, three copies) should be sent to the Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, Room N-
5649, U.S. Department of Labor, 200 Constitution Avenue, NW, 
Washington, DC 20210, Attention: Application Nos. D-10809 and D-10865. 
The applications pertaining to the proposed exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5507, 200 Constitution Avenue, NW, 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, telephone (202) 219-8881. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed exemption that would amend and 
replace PTE 99-15. PTE 99-15, provides an exemption from certain 
prohibited transaction restrictions of section 406 of the Employee 
Retirement Income Security Act of 1974 (the Act) and from the sanctions 
resulting from the application of section 4975 of the Internal Revenue 
Code of 1986 (the Code), as amended, by reason of section 4975(c)(1) of 
the Code. Specifically, PTE 99-15 provides exemptive relief from the 
restrictions of section 406(a) of the Act and the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (D) of the Code, for the purchase or redemption 
of shares in the Trust by an employee benefit plan, an individual 
retirement account (the IRA), a retirement plan for a self-employed 
individual (the Keogh Plan), or an individual account pension plan that 
is subject to the provisions of Title I of the Act and established 
under section 403(b) of the Code (the Section 403(b) Plan).
    PTE 99-15 also provides exemptive relief from the restrictions of 
section 406(b) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(E) and (F) of the Code, with respect to the provision, by 
the Consulting Group of Salomon Smith Barney (the Consulting Group), of 
(1) investment advisory services or (2) an automatic reallocation 
option to an independent fiduciary of a participating Plan (the 
Independent Plan Fiduciary) which may result in such fiduciary's 
selection of a portfolio (the Portfolio) in the TRAK Program for the 
investment of Plan assets.\1\
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    \1\ PTE 99-15 also (a) described a series of corporate mergers 
which changed the names of the parties identified in two prior TRAK 
exemptions which it superseded [i.e., PTE 94-50 (59 FR 32024, June 
21, 1994) and PTE 92-77 (55 FR 45833, October 5, 1992)] and which 
would permit broader distribution of TRAK-related products; (b) 
implemented a recordkeeping reimbursement offset procedure under the 
TRAK Program; (c) adopted an automated reallocation option under the 
TRAK Program that would reduce the asset allocation (or ``outside'') 
fee paid to Salomon Smith Barney by a Plan investor; and (d) 
expanded the scope of the exemption to include Section 403(b) Plans.
    PTE 94-50 permitted Smith, Barney Inc. (Smith Barney), Salomon 
Smith Barney's predecessor, to add a daily-traded collective 
investment fund (the GIC Fund) to the existing Fund portfolios and 
to describe the various entities operating the GIC Fund. PTE 94-50 
also replaced references to Shearson Lehman Brothers, Inc. (Shearson 
Lehman) with Smith Barney and amended and replaced PTE 92-77.
    Finally, PTE 92-77 permitted Shearson Lehman to make the TRAK 
Program available to Plans that acquired shares in the former Trust 
for TRAK Investments and allowed the Consulting Group to provide 
investment advisory services to an Independent Plan Fiduciary which 
might result in such fiduciary's selection of a Portfolio in the 
TRAK Program for the investment of Plan assets.

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[[Page 35139]]

    As of December 31, 1998, the TRAK Program held assets that were in 
excess of $9.6 billion. Of those assets, approximately $1.9 billion 
were held in 407 Plan accounts having cash or deferred compensation 
arrangements and approximately $4.2 billion were held in more than 
59,000 employee benefit plan and IRA/Keogh-type Plan accounts. At 
present, the Trust consists of 17 Portfolios that are managed by the 
Consulting Group and advised by one or more unaffiliated sub-advisers 
selected by Salomon Smith Barney.
    Salomon Smith Barney requests a modification of PTE 99-15 and a 
replacement of that exemption with a new exemption for purposes of 
uniformity.\2\ Specifically, Salomon Smith Barney requests that the 
term ``affiliate,'' as set forth in PTE 99-15, in Section II(h) of the 
General Conditions and in Section III(b) of the Definitions, be amended 
and clarified to avoid possible misinterpretation. In this regard, 
Salomon Smith Barney also requests that the term ``officer'' be defined 
and incorporated into the proposed exemption, in new Section III(d), to 
limit the affiliate definition to persons who have a significant 
management role. Further, Salomon Smith Barney requests that Section 
II(i) of PTE 99-15 be amended to permit an independent sub-adviser (the 
Sub-Adviser), under certain circumstances, to exceed the current one 
percent limitation on the acquisition of securities that are issued by 
Salomon Smith Barney and/or its affiliates, notably in the Sub-
Adviser's replication of a third-party index. If granted, the proposed 
exemption would be effective as of April 1, 2000.
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    \2\ The Department deems PTE 94-50 as having been effectively 
superseded by PTE 99-15. Therefore, the proposed amendments 
described herein will not apply to PTE 94-50.
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    The proposed exemption has been requested in an application filed 
on behalf of Salomon Smith Barney pursuant to 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, 
August 10, 1990). Effective December 31, 1978, section 102 of 
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) 
transferred the authority of the Secretary of the Treasury to issue 
exemptions of the type requested to the Secretary of Labor. 
Accordingly, the proposed exemption is being issued solely by the 
Department.

I. Proposed Modification of the Term ``Affiliate''

    Salomon Smith Barney represents that in early December 1999, 
Citigroup and State Street Corporation announced an agreement to form a 
joint venture called CitiStreet LLC, a Delaware limited liability 
company (the Joint Venture). The Joint Venture, which was closed on 
April 1, 2000, is each 50 percent owned by Keeper Holdings LLC (Citi), 
a wholly owned subsidiary of Citigroup, and by State Street Bank and 
Trust Company (State Street), a wholly owned subsidiary of State Street 
Corporation. Both Citigroup and State Street Corporation are publicly-
held corporations.
    Salomon Smith Barney explains that the formation of the Joint 
Venture may have resulted in the disqualification of State Street 
Global Advisers (SSgA), a division of State Street, from acting as a 
Sub-Adviser in the TRAK Program due to certain ambiguities in the 
meaning of the word ``affiliate.'' Salomon Smith Barney represents that 
SSgA is currently a Sub-Adviser with respect to approximately $800 
million in assets in the International Equity Investments Portfolio and 
the Emerging Markets Equity Investments Portfolio.

A. Sections II(h) and III(b)

    Section II(h) of PTE 99-15 provides that--

    Any sub-adviser (the Sub-Adviser) that acts for the Trust to 
exercise investment discretion over a Portfolio will be independent 
of Salomon Smith Barney and its affiliates.

    Although the term ``independent'' is not defined in the exemption, 
Salomon Smith Barney notes that this condition was added to the 
original Shearson Lehman exemption request when Shearson Lehman agreed 
not to use affiliated Sub-Advisers. Therefore, Salomon Smith Barney 
presumes that the term ``independent'' means ``not an affiliate.''
    Salomon Smith Barney represents that Section III(b) of PTE 99-15 
defines the term ``affiliate'' of Salomon Smith Barney to include:

    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Salomon Smith Barney. (For purposes of this subparagraph, the 
term ``control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an 
individual.)
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.

Salomon Smith Barney notes that problems of interpretation have arisen 
because subparagraphs (2) and (3) of the affiliate definition use the 
term ``such person'' rather than referring directly to Salomon Smith 
Barney. Salomon Smith Barney explains that when defining an 
``affiliate'' of Salomon Smith Barney, the definition may be construed 
to encompass only relationships with Salomon Smith Barney that involve 
shared control, influence or economic interests or it could be 
interpreted to cover affiliates of Salomon Smith Barney's affiliates, 
where there is no basis for common management or identical economic 
interests, because subparagraphs (2) and (3) have no clear antecedents.
    Salomon Smith Barney asserts that State Street is not under common 
corporate control with either it or any of its corporate affiliates. 
Instead, State Street is a subsidiary of an independently-owned and 
managed public company. Therefore, there is no control relationship, as 
contemplated in subparagraph (1) of Section III(b), between Citigroup 
and State Street Corporation, the respective parent companies of 
Salomon Smith Barney and of State Street. Salomon Smith Barney also 
states that the Joint Venture is not necessarily its affiliate under 
subparagraph (1) of the definition because Salomon Smith Barney's 
indirect 50 percent ownership interest in the Joint Venture is not a 
``controlling interest.'' Therefore, if the Joint Venture is not an 
affiliate, Salomon Smith Barney believes that State Street is not a 
partner of Salomon Smith Barney, nor an officer or director of Salomon 
Smith Barney, as contemplated in subparagraph (2) of Section III(b). 
Further, Salomon Smith Barney explains that State Street's exclusive 
ownership by State Street Corporation does not trigger the ownership 
provisions of subparagraph (3) of Section III(b).
    In addition to the above, Salomon Smith Barney states that it will 
not exercise control or influence in the operation of the Joint Venture 
that will inure to State Street. In addition, Salomon Smith Barney 
represents that Citi will not exercise control of the Joint Venture 
because it has only a 50 percent interest. Further, since all 
significant corporate actions of the Joint Venture will require 
unanimity, Salomon Smith Barney explains that neither Citi nor State 
Street will be able to exercise exclusive control over the Joint 
Venture.

[[Page 35140]]

B. Proposed Amendment

    Salomon Smith Barney submits that subparagraph (1) of Section 
III(b) does not require any clarification. However, it proposes that 
subparagraphs (2) and (3) of the affiliate definition be modified to 
cover only those persons and entities that have a significant role in 
the decisions made by Salomon Smith Barney or which are managed or 
influenced by Salomon Smith Barney. These entities or persons include 
individual officers, directors and partners in Salomon Smith Barney and 
its corporate affiliates, and corporations and partnerships in which 
Salomon Smith Barney and its corporate affiliates have a 10 percent or 
greater interest. Salomon Smith Barney believes that this tailoring of 
the affiliate definition will avoid future problems in determining the 
independence of the Sub-Advisers, including SSgA.
    Thus, on the basis of the foregoing, Section III(b) of PTE 99-15 is 
hereby modified in this notice of proposed exemption to read as 
follows:

    (b) An ``affiliate'' of Salomon Smith Barney includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Salomon Smith Barney; (For purposes of this subparagraph, the 
term ``control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an 
individual.)
    (2) Any individual who is an officer, director or partner in 
Salomon Smith Barney or a person who is described in subparagraph 
(b)(1);
    (3) Any corporation or partnership of which Salomon Smith Barney 
or an affiliate described in subparagraph (b)(1), is a 10 percent or 
more partner or owner; and
    (4) Any corporation or partnership of which any individual which 
is an officer or director of Salomon Smith Barney, is a 10 percent 
or more partner or owner.

    In connection with the revised affiliate definition, Salomon Smith 
Barney requests that the term ``officer'' be defined in new 
subparagraph (d) of Section III to limit this portion of the affiliate 
definition to individuals who have a significant management role. 
Salomon Smith Barney points out that there are job titles at fairly 
modest levels of authority within it as well as in any company, and it 
wishes to ensure that future factual inquiries into an individual's 
status as an affiliate do not require that it contact virtually every 
official in its corporate population in a due diligence effort. 
Therefore, Salomon Smith Barney proposes that Section III(d) should 
read as follows:

The term ``officer'' means a president, any vice president in charge 
of a principal business unit, division or function (such as sales, 
administration or finance), or any other officer who performs a 
policy-making function for the entity.

    Under the foregoing modifications, Salomon Smith Barney believes 
that Sections II(h) and III(b) of the proposed exemption will no longer 
have conflicting meanings.

II. Proposed Modification of the One Percent Limitation on Stock 
Issued by Salomon Smith Barney and/or Its Affiliates

    Salomon Smith Barney represents that there are a number of 
established market indexes that have been created by parties which are 
unaffiliated with Citigroup, its indirect parent. For example, the S&P 
500 Index is a widely-used benchmark index of domestic equity 
performance. This index consists of 500 stocks that have been selected 
by the Standard & Poor's Company (S&P) for market capitalization, 
liquidity and industry group representation. The index is market-value 
weighted so the performance of the larger of the included companies has 
a greater impact on the performance of the index as a whole. Currently, 
the common stock (the Common Stock) of Citigroup represents 1.57 
percent of the S&P 500 Index.
    In addition to the S&P 500 Index, Salomon Smith Barney explains 
that the Russell 3000 Index is composed of the 3,000 largest United 
States companies, based upon total market capitalization. Salomon Smith 
Barney also points out that there are a number of Russell Indexes which 
are based on subsets of the Russell 3000 Index. These Indexes include 
(a) the Russell 2000 Index, which measures the performance of the 
smallest 2,000 United States companies in the Russell 3000 Index and 
therefore, excludes Citigroup; and (b) the Russell 1000 Index, which 
measures the performance of the 1,000 largest United States companies 
in the Russell 3000 Value Index and includes Citigroup. In addition, 
Salomon Smith Barney represents that there are further subsets of the 
Russell Indexes which are based upon Russell's characterization of 
stock as either ``Growth'' or ``Value.'' For example, Salomon Smith 
Barney explains that Citigroup is included within these subsets. As of 
March 31, 2000, Citigroup Common Stock represented 3.8981 percent of 
the Russell 1000 Value Index and 3.6343 percent of the Russell 3000 
Value Index.

A. Section II(i)

    Based upon the foregoing descriptions of the stock indexes, Salomon 
Smith Barney requests that Section II(i) of PTE 99-15 be modified in 
order to permit an independent Sub-Adviser which manages the assets in 
a Portfolio to exceed the one percent investment limitation on 
securities issued by Salomon Smith Barney and/or its affiliates under 
certain circumstances. As currently drafted, Section II(i) states 
that--

Immediately following the acquisition by a Portfolio of any 
securities that are issued by Salomon Smith Barney and/or its 
affiliates, the percentage of that Portfolio's net assets invested 
in such securities will not exceed one percent.

In other words, the exception will apply to ``any higher percentage'' 
which may result from a Sub-Adviser's management of an index fund (the 
Index Fund) Portfolio which includes Citigroup Common Stock. The index 
will be an established third party index and the Sub-Adviser will track 
the index results using the ``passive full replication'' trading 
method.\3\
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    \3\ According to Salomon Smith Barney, there are two forms of 
index trading--passive full replication (wherein each stock in the 
same weightings as the index is owned by a mutual fund) and sampling 
(in which each sector, but not necessarily all stocks in such 
sector, in the same weightings as the index is also owned by a 
mutual fund). Salomon Smith Barney notes that sampling is used most 
often when a portfolio is smaller and cannot efficiently replicate 
the entire index.
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    Because the Sub-Adviser will purchase and sell Citigroup Common 
Stock to approximate the performance of an index rather than reflect 
the Sub-Adviser's evaluation of the Common Stock in its individual 
merits, Salomon Smith Barney states that any additional investment by a 
Portfolio in Citigroup Common Stock over the one percent threshold will 
result from the implementation of the trading method and not from the 
Sub-Adviser's exercise of investment discretion.
    Due to the one percent limitation of Section II(i), Salomon Smith 
Barney states that active Sub-Advisers for the Consulting Group may not 
own or trade Citigroup Common Stock and they will continue to be 
prohibited from trading in Citigroup Common Stock. However, Salomon 
Smith Barney proposes that passive or pure Index Fund Sub-Advisers be 
permitted to hold Citigroup Common Stock in their portfolios which 
exceed the one percent limitation to the extent such higher percentage 
is necessary to replicate the underlying index.\4\ Salomon Smith Barney 
points

[[Page 35141]]

out that pure index Sub-Advisers that are responsible for investing 
only a portion of the assets in the Consulting Group Capital Markets 
Large Cap Value Fund and the Large Cap Growth Consulting Group Capital 
Markets Fund, are currently in compliance with the one percent 
limitation. These Portfolios, which consist of both an actively-managed 
portion and a distinct, passively-managed portion, held less than one 
percent of the their total assets in Citigroup Common Stock.
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    \4\ In its management of a ``pure'' Index Fund, the Sub-Adviser 
does not evaluate individual companies to identify attractive 
investment candidates or to eliminate underperforming investments. 
Instead, the Sub-Adviser attempts to mirror the composition of the 
relevant index as closely as possible by adjusting the Portfolio 
holdings daily to reflect the companies included in the index and 
their relative weightings. Because performance of the Index Fund is 
tied to the performance of the index that it tracks, investors are 
advised that this investment strategy may mean losses if the 
applicable index performs poorly relative to other indexes or 
individual stocks.
    The performance of a pure Index Fund generally does not mirror 
the index performance exactly. The index is merely a composite 
performance figure, based upon an established selection of 
companies. It does not represent actual assets being managed so 
there are no expenses deducted from its performance results. In 
contrast, an Index Fund Portfolio represents actual assets under 
management and has liquidity requirements associated with Fund 
operation. To meet redemption requests and to pay expenses, the 
Index Fund must maintain a portion of its assets in cash and cash 
equivalents.
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    If an index-based Sub-Adviser were to manage a greater portion or 
all of either of the aforementioned Portfolios, Salomon Smith Barney 
explains that the total Portfolio may include Citigroup Common Stock 
which breaches the one percent threshold. Similarly, Salomon Smith 
Barney notes that if the entire Portfolio, such as the Consulting Group 
Capital Markets S&P 500 Index Investment Fund Portfolio, has the 
investment objective of providing results that correspond to the price 
and yield performance of the S&P 500 Index, the Sub-Adviser would be 
expected to approximate the cited percentage of 1.57 percent for 
Citigroup Common Stock in the S&P 500 Index. This would also violate 
the one percent investment limitation.
    Salomon Smith Barney states that the present one percent limitation 
placed on Citigroup Common Stock increases the likelihood that the 
performance of an Index Fund Portfolio will not replicate the 
applicable index. Because Citigroup is among the largest companies on 
the basis of capitalization in the S&P 500, Salomon Smith Barney states 
that Citigroup's performance can have a significant impact in index 
performance calculations. However, if Citigroup Common Stock is not 
proportionately represented, Salomon Smith Barney explains that Index 
Fund performance will deviate from the index whether Citigroup Common 
Stock does well or underperforms.
    In any event, Salomon Smith Barney believes that the one percent 
limitation has the effect of depriving a Plan of the opportunity to 
invest in a Fund (available to non-Plan investors) that might otherwise 
track the applicable index more exactly. Because many Plan sponsors are 
anxious to have an Index Fund available through the TRAK Program, 
Salomon Smith Barney wishes to move quickly to accommodate the Plan 
market's design preferences.
    For these reasons, Salomon Smith Barney requests that the current 
one percent restriction be lifted and allowed to be exceeded with 
respect to Portfolio investments that are made by passive Sub-Advisers 
in Citigroup Common Stock in their replication of third-party indexes. 
In addition, Salomon Smith Barney seeks the flexibility to have the 
Portfolios consist, in whole or in part, of Index Funds that are 
managed by passive Sub-Advisers. However, the ownership by a Portfolio 
of Citigroup Common Stock which is in excess of the one percent 
limitation would result solely from the activities of the passive Sub-
Adviser in replicating an index.

B. Exemptive Safeguards

    Section II(i) of the proposed exemption has been further expanded 
to include a number of substantive safeguards for the protection of 
Plans investing under the TRAK Program. In this regard, Section II(i) 
requires that the amount held by the Sub-Adviser in managing an Index 
Fund Portfolio be held in order to replicate an established third party 
index. In addition, Section II(i) states that the index must represent 
the investment performance of a specific segment of the public market 
for equity securities in the United States and/or foreign countries. In 
this regard, the organization creating the index must be (a) engaged in 
the business of providing financial information; (b) a publisher of 
financial news information; or (c) a public stock exchange or 
association of securities dealers. The index must also be created and 
maintained by an organization independent of Salomon Smith Barney and 
its affiliates and must be a generally-accepted standardized index of 
securities which is not specifically tailored for use by Salomon Smith 
Barney and its affiliates.
    Moreover, Section II(i) requires that the acquisition or 
disposition of Citigroup Common Stock must not include any agreement, 
arrangement or understanding regarding the design or operation of the 
Portfolio acquiring the Citigroup Common Stock, which is intended to 
benefit Salomon Smith Barney or any party in which Salomon Smith Barney 
may have an interest.
    Finally, Section II(i) requires that an Independent Plan Fiduciary 
authorize the investment of a Plan's assets in an Index Fund Portfolio 
which purchases and/or holds Citigroup Common Stock while the Sub-
Adviser will be responsible for voting any shares of Citigroup Common 
Stock that are held by an Index Fund on any matter in which 
shareholders of Citigroup Common Stock are required or permitted to 
vote.

Notice to Interested Persons

    Notice of the proposed exemption will be mailed by first class mail 
to the Independent Plan Fiduciary Plan of each Plan currently 
participating in the TRAK Program, or, in the case of a Section 404(c) 
Plan, to the recordholder of Trust shares. Such notice will be given 
within 15 days of the publication of the notice of pendency in the 
Federal Register. The notice will contain a copy of the notice of 
proposed exemption as published in the Federal Register and a 
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2). 
The supplemental statement will inform interested persons of their 
right to comment on and/or to request a hearing with respect to the 
pending exemption. Written comments and hearing requests are due within 
45 days of the publication of the proposed exemption in the Federal 
Register.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and 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 require, among other things, a fiduciary to 
discharge his or her duties respecting the plan solely in the interest 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it 
affect the requirements of section 401(a) of the Code that the plan 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) The proposed exemption, if granted, will extend to transactions 
prohibited under section 406(b)(3) of the Act and section 4975(c)(1)(F) 
of the Code;

[[Page 35142]]

    (3) Before an exemption can be granted under section 408(a) of the 
Act and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interest of the plan 
and of its participants and beneficiaries and protective of the rights 
of participants and beneficiaries of the plan;
    (4) This proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and the Code, 
including statutory or administrative exemptions. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (5) This proposed exemption, if granted, is subject to the express 
condition that the facts and representations set forth in the notice of 
proposed exemption relating to PTE 99-15 and this notice, accurately 
describe, where relevant, the material terms of the transactions to be 
consummated pursuant to this exemption.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemption to the address above, 
within the time frame set forth above, after the publication of this 
proposed exemption in the Federal Register. All comments will be made a 
part of the record. Comments received will be available for public 
inspection with the referenced applications at the address set forth 
above.

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting the requested 
exemption under the authority of section 408(a) of the 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, August 10, 1990).

Section I. Covered Transactions

    A. If the exemption is granted, the restrictions of section 406(a) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply, to the purchase or redemption of shares by an 
employee benefit plan, an individual retirement account (the IRA), a 
retirement plan for self-employed individuals (the Keogh Plan), or an 
individual account pension plan that is subject to the provisions of 
Title I of the Act and established under section 403(b) of the Code 
(the Section 403(b) Plan; collectively, the Plans) in the Trust for 
Consulting Group Capital Market Funds (the Trust), established by 
Salomon Smith Barney, in connection with such Plans' participation in 
the TRAK Personalized Investment Advisory Service product (the TRAK 
Program).
    B. If the exemption is granted, the restrictions of section 406(b) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(E) and (F) of the 
Code, shall not apply, to the provision, by the Consulting Group, of 
(1) investment advisory services or (2) an automatic reallocation 
option (the Automatic Reallocation Option) to an independent fiduciary 
of a participating Plan (the Independent Plan Fiduciary), which may 
result in such fiduciary's selection of a portfolio (the Portfolio) in 
the TRAK Program for the investment of Plan assets.
    This proposed exemption is subject to the following conditions that 
are set forth below in Section II.

Section II. General Conditions

    (a) The participation of Plans in the TRAK Program will be approved 
by an Independent Plan Fiduciary. For purposes of this requirement, an 
employee, officer or director of Salomon Smith Barney and/or its 
affiliates covered by an IRA not subject to Title I of the Act will be 
considered an Independent Plan Fiduciary with respect to such IRA.
    (b) The total fees paid to the Consulting Group and its affiliates 
will constitute no more than reasonable compensation.
    (c) No Plan will pay a fee or commission by reason of the 
acquisition or redemption of shares in the Trust.
    (d) The terms of each purchase or redemption of Trust shares shall 
remain at least as favorable to an investing Plan as those obtainable 
in an arm's length transaction with an unrelated party.
    (e) The Consulting Group will provide written documentation to an 
Independent Plan Fiduciary of its recommendations or evaluations based 
upon objective criteria.
    (f) Any recommendation or evaluation made by the Consulting Group 
to an Independent Plan Fiduciary will be implemented only at the 
express direction of such Independent Plan Fiduciary, provided, 
however, that--
    (1) If such Independent Plan Fiduciary shall have elected in 
writing (the Election), on a form designated by Salomon Smith Barney 
from time to time for such purpose, to participate in the Automatic 
Reallocation Option under the TRAK Program, the affected Plan or 
participant account will be automatically reallocated whenever the 
Consulting Group modifies the particular asset allocation 
recommendation which the Independent Plan Fiduciary has chosen. Such 
Election shall continue in effect until revoked or terminated by the 
Independent Plan Fiduciary in writing.
    (2) Except as set forth below in paragraph II(f)(3), at the time of 
a change in the Consulting Group's asset allocation recommendation, 
each account based upon the asset allocation model (the Allocation 
Model) affected by such change would be adjusted on the business day of 
the release of the new Allocation Model by the Consulting Group, except 
to the extent that market conditions, and order purchase and redemption 
procedures may delay such processing through a series of purchase and 
redemption transactions to shift assets among the affected Portfolios.
    (3) If the change in the Consulting Group's asset allocation 
recommendation exceeds an increase or decrease of more than 10 percent 
in the absolute percentage allocated to any one investment medium 
(e.g., a suggested increase in a 15 percent allocation to greater than 
25 percent, or a decrease of such 15 percent allocation to less than 5 
percent), Salomon Smith Barney will send out a written notice (the 
Notice) to all Independent Plan Fiduciaries whose current investment 
allocation would be affected, describing the proposed reallocation and 
the date on which such allocation is to be instituted (the Effective 
Date). If the Independent Plan Fiduciary notifies Salomon Smith Barney, 
in writing, at any time within the period of 30 calendar days prior to 
the proposed Effective Date that such fiduciary does not wish to follow 
such revised asset allocation recommendation, the Allocation Model will 
remain at the current level, or at such other level as the Independent 
Plan Fiduciary then expressly designates, in writing. If the 
Independent Plan Fiduciary does not affirmatively ``opt out'' of the 
new Consulting Group recommendation, in writing, prior to the proposed 
Effective Date, such new recommendation will be automatically effected 
by a dollar-for-dollar liquidation and purchase of the required amounts 
in the respective account.
    (4) An Independent Plan Fiduciary will receive a trade confirmation 
of each reallocation transaction. In this regard, for all Plan 
investors other than Section 404(c) Plan accounts (i.e., 401(k) Plan

[[Page 35143]]

accounts), Salomon Smith Barney will mail trade confirmations on the 
next business day after the reallocation trades are executed. In the 
case of Section 404(c) Plan participants, notification will depend upon 
the notification provisions agreed to by the Plan recordkeeper.
    (g) The Consulting Group will generally give investment advice in 
writing to an Independent Plan Fiduciary with respect to all available 
Portfolios. However, in the case of a Plan providing for participant-
directed investments (the Section 404(c) Plan), the Consulting Group 
will provide investment advice that is limited to the Portfolios made 
available under the Plan.
    (h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to 
exercise investment discretion over a Portfolio will be independent of 
Salomon Smith Barney and its affiliates.
    (i) Immediately following the acquisition by a Portfolio of any 
securities that are issued by Salomon Smith Barney and/or its 
affiliates, such as Citigroup Inc. common stock (the Citigroup Common 
Stock), the percentage of that Portfolio's net assets invested in such 
securities will not exceed one percent. However, this percentage 
limitation may be exceeded if--
    (1) The amount held by a Sub-Adviser in managing a Portfolio is 
held in order to replicate an established third party index.
    (2) The index represents the investment performance of a specific 
segment of the public market for equity securities in the United States 
and/or foreign countries. The organization creating the index must be--
    (i) Engaged in the business of providing financial information;
    (ii) A publisher of financial news information; or
    (iii) A public stock exchange or association of securities dealers.
    The index is created and maintained by an organization independent 
of Salomon Smith Barney and its affiliates and is a generally-accepted 
standardized index of securities which is not specifically tailored for 
use by Salomon Smith Barney and its affiliates.
    (3) The acquisition or disposition of Citigroup Common Stock does 
not include any agreement, arrangement or understanding regarding the 
design or operation of the Portfolio acquiring the Citigroup Common 
Stock, which is intended to benefit Salomon Smith Barney or any party 
in which Salomon Smith Barney may have an interest.
    (4) The Independent Plan Fiduciary authorizes the investment of a 
Plan's assets in an Index Fund which purchases and/or holds Citigroup 
Common Stock and the Sub-Adviser is responsible for voting any shares 
of Citigroup Common Stock that are held by an Index Fund on any matter 
in which shareholders of Citigroup Common Stock are required or 
permitted to vote.
    (j) The quarterly investment advisory fee that is paid by a Plan to 
the Consulting Group for investment advisory services rendered to such 
Plan will be offset by such amount as is necessary to assure that the 
Consulting Group retains no more than 20 basis points from any 
Portfolio (with the exception of the Government Money Investments 
Portfolio and the GIC Fund Portfolio for which the Consulting Group and 
the Trust will retain no investment management fee) which contains 
investments attributable to the Plan investor.
    (k) With respect to its participation in the TRAK Program prior to 
purchasing Trust shares,
    (1) Each Plan will receive the following written or oral 
disclosures from the Consulting Group:
    (A) A copy of the Prospectus for the Trust discussing the 
investment objectives of the Portfolios comprising the Trust, the 
policies employed to achieve these objectives, the corporate 
affiliation existing between the Consulting Group, Salomon Smith Barney 
and its subsidiaries and the compensation paid to such entities.\5\
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    \5\ The fact that certain transactions and fee arrangements are 
the subject of an administrative exemption does not relieve the 
Independent Plan Fiduciary from the general fiduciary responsibility 
provisions of section 404 of the Act. In this regard, the Department 
expects the Independent Plan Fiduciary to consider carefully the 
totality of the fees and expenses to be paid by the Plan, including 
the fees paid directly to Salomon Smith Barney or to other third 
parties.
---------------------------------------------------------------------------

    (B) Upon written or oral request to Salomon Smith Barney, a 
Statement of Additional Information supplementing the Prospectus which 
describes the types of securities and other instruments in which the 
Portfolios may invest, the investment policies and strategies that the 
Portfolios may utilize and certain risks attendant to those 
investments, policies and strategies.
    (C) A copy of the investment advisory agreement between the 
Consulting Group and such Plan relating to participation in the TRAK 
Program and, if applicable, informing Plan investors of the Automatic 
Reallocation Option.
    (D) Upon written request of Salomon Smith Barney, a copy of the 
respective investment advisory agreement between the Consulting Group 
and the Sub-Advisers.
    (E) In the case of a Section 404(c) Plan, if required by the 
arrangement negotiated between the Consulting Group and the Plan, an 
explanation by a Salomon Smith Barney Financial Consultant (the 
Financial Consultant) to eligible participants in such Plan, of the 
services offered under the TRAK Program and the operation and 
objectives of the Portfolios.
    (F) A copy of the proposed exemption and the final exemption, if 
granted, pertaining to the exemptive relief described herein.
    (2) If accepted as an investor in the TRAK Program, an Independent 
Plan Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in 
writing, prior to purchasing Trust shares that such fiduciary has 
received copies of the documents described above in subparagraph (k)(1) 
of this Section.
    (3) With respect to a Section 404(c) Plan, written acknowledgement 
of the receipt of such documents will be provided by the Independent 
Plan Fiduciary (i.e., the Plan administrator, trustee or named 
fiduciary, as the recordholder of Trust shares). Such Independent Plan 
Fiduciary will be required to represent in writing to Salomon Smith 
Barney that such fiduciary is (a) independent of Salomon Smith Barney 
and its affiliates and (b) knowledgeable with respect to the Plan in 
administrative matters and funding matters related thereto, and able to 
make an informed decision concerning participation in the TRAK Program.
    (4) With respect to a Plan that is covered under Title I of the 
Act, where investment decisions are made by a trustee, investment 
manager or a named fiduciary, such Independent Plan Fiduciary is 
required to acknowledge, in writing, receipt of such documents and 
represent to Salomon Smith Barney that such fiduciary is (a) 
independent of Salomon Smith Barney and its affiliates, (b) capable of 
making an independent decision regarding the investment of Plan assets 
and (c) knowledgeable with respect to the Plan in administrative 
matters and funding matters related thereto, and able to make an 
informed decision concerning participation in the TRAK Program.
    (l) Subsequent to its participation in the TRAK Program, each Plan 
receives the following written or oral disclosures with respect to its 
ongoing participation in the TRAK Program:
    (1) The Trust's semi-annual and annual report which will include 
financial statement for the Trust and investment management fees paid 
by each Portfolio.
    (2) A written quarterly monitoring statement containing an analysis 
and an

[[Page 35144]]

evaluation of a Plan investor's account to ascertain whether the Plan's 
investment objectives have been met and recommending, if required, 
changes in Portfolio allocations.
    (3) If required by the arrangement negotiated between the 
Consulting Group and a Section 404(c) Plan, a quarterly, detailed 
investment performance monitoring report, in writing, provided to an 
Independent Plan Fiduciary of such Plan showing, Plan level asset 
allocations, Plan cash flow analysis and annualized risk adjusted rates 
of return for Plan investments. In addition, if required by such 
arrangement, Financial Consultants will meet periodically with 
Independent Plan Fiduciaries of Section 404(c) Plans to discuss the 
report as well as with eligible participants to review their accounts' 
performance.
    (4) If required by the arrangement negotiated between the 
Consulting Group and a Section 404(c) Plan, a quarterly participant 
performance monitoring report provided to a Plan participant which 
accompanies the participant's benefit statement and describes the 
investment performance of the Portfolios, the investment performance of 
the participant's individual investment in the TRAK Program, and gives 
market commentary and toll-free numbers that will enable the 
participant to obtain more information about the TRAK Program or to 
amend his or her investment allocations.
    (5) On a quarterly and annual basis, written disclosures to all 
Plans of the (a) percentage of each Portfolio's brokerage commissions 
that are paid to Salomon Smith Barney and its affiliates and (b) the 
average brokerage commission per share paid by each Portfolio to 
Salomon Smith Barney and its affiliates, as compared to the average 
brokerage commission per share paid by the Trust to brokers other than 
Salomon Smith Barney and its affiliates, both expressed as cents per 
share.
    (m) Salomon Smith Barney shall maintain, for a period of six years, 
the records necessary to enable the persons described in paragraph (n) 
of this Section 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, due to circumstances beyond the control 
of Salomon Smith Barney and/or its affiliates, the records are lost or 
destroyed prior to the end of the six year period, and (2) no party in 
interest other than Salomon Smith Barney shall be subject to the civil 
penalty that may be assessed under section 502(i) of the Act, or to the 
taxes imposed by section 4975(a) and (b) of the Code, if the records 
are not maintained, or are not available for examination as required by 
paragraph (n) below.
    (n)(1) Except as provided in section (2) of this paragraph and 
notwithstanding any provisions of subparagraphs (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (m) of 
this Section II shall be unconditionally available at their customary 
location during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department or the Service;
    (B) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs (B)-(D) of 
this paragraph (n) shall be authorized to examine the trade secrets of 
Salomon Smith Barney or commercial or financial information which is 
privileged or confidential.

Section III. Definitions

    For purposes of this proposed exemption:
    (a) The term ``Salomon Smith Barney'' means Salomon Smith Barney 
Inc. and any affiliate of Salomon Smith Barney, as defined in paragraph 
(b) of this Section III.
    (b) An ``affiliate'' of Salomon Smith Barney includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Salomon Smith Barney; (For purposes of this subparagraph, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.)
    (2) Any individual who is an officer (as defined in Section III(d) 
hereof), director or partner in Salomon Smith Barney or a person 
described in subparagraph (b)(1);
    (3) Any corporation or partnership of which Salomon Smith Barney or 
an affiliate described in subparagraphs(b)(1), is a 10 percent or more 
partner or owner; and
    (4) Any corporation or partnership of which any individual which is 
an officer or director of Salomon Smith Barney, is a 10 percent or more 
partner or owner.
    (c) An ``Independent Plan Fiduciary'' is a Plan fiduciary which is 
independent of Salomon Smith Barney and its affiliates and is either--
    (1) A Plan administrator, sponsor, trustee or named fiduciary, as 
the recordholder of Trust shares under a Section 404(c) Plan;
    (2) A participant in a Keogh Plan;
    (3) An individual covered under (i) a self-directed IRA or (ii) a 
Section 403(b) Plan, which invests in Trust shares;
    (4) A trustee, investment manager or named fiduciary responsible 
for investment decisions in the case of a Title I Plan that does not 
permit individual direction as contemplated by Section 404(c) of the 
Act; or
    (5) A participant in a Plan, such as a Section 404(c) Plan, who is 
permitted under the terms of such Plan to direct, and who elects to 
direct the investment of assets of his or her account in such Plan.
    (d) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policymaking function for the entity.

Section IV. Effective Dates

    If granted, this proposed exemption will be effective as of April 
1, 2000, with respect to the amendments to Section II(i) and Section 
III(b) and the inclusion of new Section III(d).
    The availability of this proposed exemption is subject to the 
express condition that the material facts and representations contained 
in the application for exemption are true and complete and accurately 
describe all material terms of the transactions. In the case of 
continuing transactions, if any of the material facts or 
representations described in the applications change, the exemption 
will cease to apply as of the date of such change. In the event of any 
such change, an application for a new exemption must be made to the 
Department.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant PTE 92-77, PTE 94-50 and 
PTE 99-15, refer to the proposed exemptions and the grant notices which 
are cited above.

    Signed at Washington, D.C., this 25th day of May, 2000.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-13643 Filed 5-31-00; 8:45 am]
BILLING CODE 4510-29-P