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Secretary of Labor Thomas E. Perez
Grant of Individual Exemption To Amend Prohibited Transaction Exemption (PTE) 94-50 Involving Salomon Smith Barney Inc. (Salomon Smith Barney) Located in New York, NY [Notices] [04/05/1999]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemption To Amend Prohibited Transaction Exemption (PTE) 94-50 Involving Salomon Smith Barney Inc. (Salomon Smith Barney) Located in New York, NY [04/05/1999]

[PDF Version]

Volume 64, Number 64, Page 16486-16493

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-15; Exemption Application No. D-
10574]

 
Grant of Individual Exemption To Amend Prohibited Transaction 
Exemption (PTE) 94-50 Involving Salomon Smith Barney Inc. (Salomon 
Smith Barney) Located in New York, NY

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

ACTION: Grant of individual exemption to modify PTE 94-50.

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SUMMARY: This document contains a final exemption before the Department 
of Labor (the Department) which would amend PTE 94-50 (59 FR 32024, 
June 21, 1994), an exemption granted to Smith Barney, Inc. (Smith 
Barney), the predecessor of Salomon Smith Barney. PTE 94-50 relates to 
the operation of the TRAK Personalized Investment Advisory Service 
product (the TRAK Program) and the Trust for TRAK Investments 
(subsequently renamed the Trust for Consulting Group Capital Markets 
Funds) (the Trust). These transactions are described in a notice of 
pendency that was published in the Federal Register on November 9, 1998 
at 63 FR 60391.

EFFECTIVE DATE: This exemption is effective as of July 31, 1993 with 
respect to the transactions described in Section I.A. and B.(1). of 
this grant notice. It is also effective as of March 29, 1994 for 
transactions involving a daily-traded collective investment fund (the 
GIC Fund) that was added to the TRAK Program pursuant to PTE 94-50. 
With respect to Section I.B(2) and Section II(f)(1)-(4) of the General 
Conditions of this grant notice, which set forth the amendments to PTE 
94-50, this exemption is effective as of November 9, 1998.

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: On November 9, 1998, the Department 
published, at 63 FR 60391, a notice of proposed exemption in the 
Federal Register that would amend PTE 94-50. PTE 94-50 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 94-50 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, or a retirement plan 
for a self-employed individual (collectively, the Plans). PTE 94-50 
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 Smith 
Barney (the Consulting Group), of investment advisory services to 
independent fiduciaries of participating Plans (the Independent Plan 
Fiduciaries) that might result in such fiduciary's selection of an 
investment portfolio under the TRAK Program for the investment of Plan 
assets. <SUP>1</SUP>
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    \1\ On October 5, 1992, the Department granted PTE 92-77 at 55 
FR 45833. PTE 92-77 permitted Shearson Lehman Brothers, Inc. 
(Shearson Lehman) to make the TRAK Program available to Plans that 
acquired shares in the Trust. In this regard, PTE 92-77 permitted 
Plans to purchase or redeem shares in the Trust and allowed the 
Consulting Group to provide investment advisory services to an 
Independent Fiduciary of a Plan which might result in such 
fiduciary's selection of a Portfolio in the TRAK Program for the 
investment of Plan assets.
    Subsequent to the granting of PTE 92-77, on July 31, 1993, Smith 
Barney acquired certain assets of Shearson Lehman associated with 
its retail business, including the TRAK Program, and applied for and 
received a new exemption (PTE 94-50) for the ongoing operation of 
the TRAK Program. Essentially, PTE 94-50 amended and replaced PTE 
92-77. However, because of certain material factual changes to the 
representations supporting PTE 92-77, the Department determined that 
the exemption was no longer effective for use by Smith Barney and 
its subsidiaries as of the date of the asset sale.
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    Besides the transactions described above, PTE 94-50 permitted Smith 
Barney to add a daily-traded collective investment fund (i.e., the GIC 
Fund) to the existing Fund Portfolios and to describe the various 
entities operating the GIC Fund. Further, PTE 94-50 replaced references 
to Shearson Lehman with references to Smith Barney. PTE 94-50 is 
effective as of July 31, 1993 for the transactions described in PTE 92-
77 and effective as of March 29, 1994 with respect to transactions 
involving the GIC Fund.
    Salomon Smith Barney has informed the Department of certain changes 
to the facts underlying PTE 94-50. These modifications include (1) 
Corporate mergers that have changed the names of the parties described 
in PTE 94-50 and would permit broader distribution of TRAK-related 
products, (2) the implementation of a recordkeeping reimbursement 
offset system (the Recordkeeping Reimbursement Offset Procedure) under 
the TRAK Program, and (3) the institution of an automated reallocation 
option (the Automatic Reallocation Option) under the TRAK Program for 
which Salomon Smith Barney has requested administrative exemptive 
relief from the Department. The proposed exemption was 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 (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, this exemption is being issued solely by the Department.
    The proposed exemption gave interested persons an opportunity to 
comment on the notice of pendency and to request a public hearing. 
During the comment period, the Department received three written 
comments and no requests for a hearing in response to the notice. Two 
comments were submitted by Plan participants investing in the TRAK 
Program. The third comment, which is intended to clarify and modify

[[Page 16487]]

the proposed exemption, was submitted by Salomon Smith Barney.
    Following is a discussion of the comments received, the responses 
provided by Salomon Smith Barney, and the Department's determinations 
regarding the comments.

Participant Comments

    The first commenter objects to the proposed exemption because he is 
under the impression that the new services that will be offered to TRAK 
Program investors by Salomon Smith Barney will result in increased fees 
paid to consultants and investment advisers by the Funds. The commenter 
also does not believe that there will be a corresponding increase in 
the growth of the Funds.
    Salomon Smith Barney represents that although it is not clear which 
provisions in the proposed exemption have elicted the comment, it 
points out that the comment relates more or less to the underlying Fund 
portfolios rather than to the TRAK Program.
    As to the commenter's first area of concern, Salomon Smith Barney 
explains that the proposed Automatic Reallocation Option is a service 
that is to be provided at no additional cost to the investor and it 
does not affect the calculation of the investment advisory fee. In 
addition, Salomon Smith Barney represents that it does not have a basis 
to respond to the inclusion of ``consultants'' in this comment. With 
respect to the commenter's concern about growth prospects, Salomon 
Smith Barney states that no investment vehicle can assure investors 
future performance.
    The second commenter states that while he has no objection to 
Salomon Smith Barney's implementation of the Automatic Reallocation 
Option, he would like to see the requirement for clear explanations of 
the choices and the implications of such choices. The commenter also 
suggests that Salomon Smith Barney provide a clear path for revocation 
of the Automatic Reallocation Option, whereby a Plan investor's choice 
would have to be reaffirmed periodically.
    In response to this comment, Salomon Smith Barney states that the 
text of the announcement referred to in the preamble (the Preamble) at 
60394 provides participants with the same information that the 
commenter requests. However, as an alternative to the commenter's 
suggestion of a reaffirmation mechanism, Salomon Smith Barney 
represents that it will include a footnote in the ``Participant 
Quarterly Review'' indicating that the participant is currently using 
the Automatic Reallocation Option and stating that such participant can 
cancel this service at any time. Salomon Smith Barney proposes to place 
the footnote after the legend quoted in Footnote 5 of the Preamble. The 
additional language would read as follows:

    You have elected to have your TRAK Portfolio automatically 
reallocated at such time as the Consulting Group recommends a change 
to the Allocation Model you are following. If, at any time, you 
choose to discontinue this service, please contact your Financial 
Consultant for instructions.

Salomon Smith Barney believes the participant will then be consistently 
reminded of his or her option to discontinue the Automatic Reallocation 
Option.

Salomon Smith Barney's Comments

1. Corporate Mergers

    Salomon Smith Barney wishes to clarify that on page 60392 of the 
Preamble, in the first sentence of the paragraph captioned ``Corporate 
Mergers,'' the phrase ``Salomon Inc., the ultimate parent of'' should 
be inserted after the phrase ``acquired all the shares of.'' Also, in 
this section, Salomon Smith Barney wishes to modify the first sentence 
of the third paragraph to clarify that one of the purposes of the 
merger, rather than the ``sole'' purpose of the merger, was to create 
additional distribution channels for the TRAK Program.
    In response to this comment, the Department concurs with the 
requested modifications and has made the suggested changes.

2. Recordkeeping Reimbursement Offset Procedure

    Salomon Smith Barney has informed the Department that although it 
has not yet implemented the Recordkeeping Reimbursement Offset 
Procedure in a manner that will reduce the net outside fee (the Net 
Outside Fee), at the present time, it has in place a recordkeeping 
reimbursement program that reduces recordkeeping expenses only, at an 
annual rate of $8.50 per participant position. Salomon Smith Barney 
states that this annualized rate has been approved by the Funds' Board 
of Trustees and that, of the $8.50 amount, $0.50 per participant 
position represents a sub-transfer agency fee for the costs associated 
with the application of the reimbursement process (the Processing Fee). 
Currently, Salomon Smith Barney states that its affiliate, Smith Barney 
Corporate Trust Company, is retaining this Processing Fee.
    Salomon Smith Barney has provided an example showing the manner in 
which the recordkeeping reimbursement amount is determined by the Funds 
at the $8.50 level using some of the numbers set forth in the example 
given in the Preamble on pages 60392 and 60393. The example assumes 
that all positions are eligible for reimbursement because positions in 
the Government Money Investments Portfolio and the Stable Value (GIC) 
Fund Portfolio are not eligible for recordkeeping reimbursement.

    Assume that Plan A has $1 million in assets invested in the TRAK 
Program and 100 participants. Assume further that Plan A pays its 
recordkeeper $20 per participant per year in Annual Fees totaling 
$2,000 per year or $500 per quarter and $12 per participant per year 
in Other Fees, totaling $1,200 per year or $300 per quarter. Assume 
also that the Plan pays the recordkeeper an annual Processing Fee of 
$150.
    At the end of each calendar quarter, Plan A's recordkeeper would 
determine the actual number of Fund positions held by the Plan A 
participants and calculate the resulting reimbursement amount that 
would be paid by the Funds. If Plan A had 300 participant positions 
at the end of the quarter, the Plan's total recordkeeping 
reimbursement amount to be paid by the Funds would be300  x  $2 (the 
annual amount of $8 divided by 4) or $600.
    The Processing Fee paid by the Plan to the recordkeeper for the 
quarter would be 300  x  $0.125 (the annual amount of $0.50 divided 
by 4) or $37.50. This Processing Fee would, in turn, also be 
credited back to the Plan by the Funds.

           Application of Reimburesment to Recordkeeping Fees
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------------------------------------------------------------------------
Quarterly Portion of Annual Fees...........................     $500.00
Quarterly Portion of Other Fees \2\........................      300.00
Processing Fee.............................................       37.50
                                                            ------------
Total Quarterly Recordkeeping Fees.........................     $837.50
Credit for Reimbursement...................................    ($600.00)
Credit for Processing Fee..................................    ($ 37.50)
                                                            ------------
    Total Reimbursement....................................    ($637.50)
Net Amount of Recordkeeping Fees Payable by the Plan.......     $200.00
Net Amount of Recordkeeping Fees Payable by the Funds......      637.50
                                                            ------------
    Total Quarterly Recordkeeping Fees.....................    $837.50
------------------------------------------------------------------------
\2\ Assumes ``Other Fees'' are paid by the Plan during the quarter.

    Since the recordkeeping reimbursement program currently in place 
applies only to the payment of expenses related to recordkeeping, 
there would never be an ``excess reimbursement'' according to 
Salomon Smith Barney. Therefore, the Total Reimbursement amount 
would reflect the lesser of the amount calculated as in the example 
above, or the actual costs billed. If

[[Page 16488]]

the Total Reimbursement calculation had exceeded the Total Quarterly 
Recordkeeping Fees, Salomon Smith Barney states that the maximum 
reimbursement amount would be limited to the Total Quarterly 
Recordkeeping Fees.

    On page 60392 of the Preamble, the second paragraph of the section 
describing the Recordkeeping Reimbursement Offset Procedure states that 
in May 1998, the Board of Trustees of the Funds approved a 
recordkeeping reimbursement amount of $12.50 for each investment 
position held by a participant. Salomon Smith Barney notes that the 
recordkeeping reimbursement amount may be changed by the Board of 
Trustees of the Funds from time to time. Therefore, it requests that 
the description of the TRAK Program define the reimbursement amount as 
``such annual dollar amount per eligible position as shall be set by 
the Board of Trustees of the Funds from time to time.'' Salomon Smith 
Barney has also informed the Department that, of the $12.50 annual 
reimbursement amount approved by the Board of Trustees of the Funds, 
$0.50 is being retained by Smith Barney Corporate Trust Company as a 
Processing Fee.
    The Department does not object to making the foregoing 
clarifications to the description of the Recordkeeping Reimbursement 
Offset Procedure in the Preamble. However, because Smith Barney 
Corporate Trust Company is retaining $0.50 per participant position as 
a Processing Fee, the Department requested that Salomon Smith Barney 
revise the calculations in the example appearing on pages 60392 and 
60393 of the Preamble. In addition to these changes, Salomon Smith 
Barney suggested that the following disclaimer language preface the 
example in order to avoid investor confusion:

    Salomon Smith Barney has provided the following numbers solely 
for ease of calculation and not as typical or representative of the 
operation of the TRAK product in any particular client circumstance.

    Moreover, Salomon Smith Barney notes that because a Plan 
participating in the TRAK Program may be required to pay a recordkeeper 
``Other Fees'' in addition to annual recordkeeping fees, both of which 
may be billed on a quarterly basis, it wishes to clarify that ``Other 
Fees'' may arise only at certain times of the year and that it does not 
wish to imply by the example that ``Other Fees'' are regularly billed 
quarterly in all instances.
    In light of these changes, the revised example is set forth as 
follows:

    Salomon Smith Barney has provided the following numbers solely 
for ease of calculation and not as typical or representative of the 
operation of the TRAK product in any particular client circumstance. 
Therefore, the Recordkeeping Reimbursement Offset Procedure would 
work as follows:
    Assume that Plan A has $1 million in assets invested in the TRAK 
Program and 100 participants. Assume further that Plan A pays its 
recordkeeper $20 per participant per year in Annual Fees totaling 
$2,000 per year or $500 per quarter and $12 per participant per year 
in Other Fees, totaling $1,200 per year or $300 per quarter. Assume 
also that the Plan pays the recordkeeper an annual Processing Fee of 
$150.
    At the end of each calendar quarter, Plan A's recordkeeper would 
determine the actual number of Fund positions held by the Plan A 
participants and calculate the resulting reimbursement amount. If 
Plan A had 300 participant positions at the end of the quarter, the 
Plan's total recordkeeping reimbursement amount would be 300  x  $3 
(the annual amount of $12 divided by 4) or $900. In addition, the 
Processing Fee paid to the recordkeeper for the quarter would be 300 
 x  $0.125 (the annual amount of $0.50 divided by 4) or $37.50.
    At the end of each calendar quarter, Plan A's recordkeeper would 
determine the actual number of Fund positions held by the Plan A 
participants and calculate the resulting reimbursement amounts to be 
paid by the Funds. If Plan A had 300 participant positions at the 
end of the quarter, the Plan's total recordkeeping reimbursement 
amount would be 300  x  $3 (the annual amount of $12 divided by 4) 
or $900. To this amount would be added the $37.50 Processing Fee 
paid to the recordkeeper during the quarter. Such amounts would be 
credited as follows:

           Application of Reimbursement to Recordkeeping Fees
------------------------------------------------------------------------

------------------------------------------------------------------------
Quarterly Portion of Annual Fees \3\.......................     $500.00
Quarterly Portion of Other Fees............................      300.00
Processing Fee.............................................       37.50
                                                            ------------
Total Quarterly Recordkeeping Fees.........................     $837.50
Credit for Reimbursement...................................    ($900.00)
Credit for Processing Fee..................................      (37.50)
                                                            ------------
    Total Reimbursement....................................    ($937.50)
Excess Reimbursement.......................................    ($100.00)
------------------------------------------------------------------------
\3\ Assumes ``Other Fees'' are paid by the Plan during the quarter.

    Because the Total Reimbursement amount exceeds the Total 
Quarterly Recordkeeping Fees, the Plan does not owe any 
recordkeeping fees for that period. Therefore, the recordkeeper 
would not bill the Plan. Instead, the Funds would pay the 
recordkeeper the $837.50 amount due.

       Application of Excess Reimbursement to the Net Outside Fee
------------------------------------------------------------------------

------------------------------------------------------------------------
Quarterly Net Outside Fee..................................   $2,125.00
Excess Reimbursement.......................................     (100.00)
                                                            ------------
Net Outside Fee Paid by the Plan...........................   $2,025.00
Net Outside Fee Paid by the Funds..........................      100.00
                                                            ------------
    Total Quarterly Net Outside Fee........................   $2,125.00
------------------------------------------------------------------------

    In the program as proposed, the Funds have agreed that any 
Excess Reimbursement amount remaining after the payment of the Total 
Quarterly Recordkeeping Fees would be paid by the Funds to reduce 
the Plan's investment advisory fee obligations. Therefore, the $100 
Excess Reimbursement amount would be applied against the Plan's 
Quarterly Net Outside Fee. Under such circumstances, the 
recordkeeper would advise the Consulting Group that it is entitled 
to bill the Plan for the $2,025.00 balance of the Consulting Group's 
Net Outside Fee. In turn, the Funds would pay the $100 amount 
attributable to the Excess Reimbursement to the Consulting 
Group.<SUP>4</SUP>

    \4\ It should be noted that the existence or the amount of the 
excess will not alter the amount of the recordkeeping or advisory 
fees. Instead, the reimbursement calculations will determine the 
proportion of payment by the Funds of the Plan's fee obligations.
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    Also, on page 60392 of the Preamble, in the second paragraph of the 
section describing the Recordkeeping Reimbursement Offset Procedure, it 
states that a participant holding positions in three different Funds 
would be eligible to receive a total annual reimbursement of $37.50. In 
light of the change to the allocation of the $12.50 reimbursement 
amount (i.e., $12.00 per participant position and $0.50 payable to 
Smith Barney Corporate Trust Company as a Processing Fee), Salomon 
Smith Barney wishes to clarify that the participant would receive a 
``total annual offset of $36.00'' rather than a ``total annual 
reimbursement of $37.50.''
    Finally, on page 60392 of the Preamble, in the last sentence of the 
second paragraph describing the Recordkeeping Reimbursement Offset 
Procedure, it states that an affected Plan will be required to pay only 
the balance of the [Net Outside] fee, which is generally charged on a 
quarterly basis, after the excess reimbursement amount has been 
deducted. Salomon Smith Barney wishes to point out that because some 
recordkeepers choose to bill the initial quarterly installment of the 
recordkeeping fee in full and then apply the recordkeeping 
reimbursement amount for each quarter to the next

[[Page 16489]]

quarter's fees, it suggests that the Department delete the clause 
stating ``and the timing of the offset of the excess reimbursement 
amount against the fees,'' appearing on page 60393 of the Preamble in 
the second sentence of the first full paragraph following the example.
    The Department concurs with the modifications to the Preamble.

3. Footnote 3

    On page 60392 of the Preamble, Footnote 3 states that Salomon Smith 
Barney is offsetting, quarterly, against the Outside Fee, such amount 
as is necessary to assure that the Consulting Group retains not more 
than 20 basis points (as an Inside Fee) from any Portfolio on 
investment assets attributable to any Plan. For purposes of 
clarification, Salomon Smith Barney requests that the Department add 
the following parenthetical exception at the end of the footnote after 
the word ``Plan'':

(except the Government Money Investments Portfolio and the Stable 
Value (GIC) Fund Portfolio, as to which no investment management fee 
is retained).

    In response, the Department concurs with this clarification.
    On page 60393 of the Preamble, the second sentence of the first 
paragraph following the example states that 23 recordkeepers currently 
provide services to TRAK Program investors. Salomon Smith Barney 
explains that since a Plan designates its own recordkeeper, the number 
``23'' is subject to change. Therefore, Salomon Smith Barney suggests 
the deletion of this number and the Department concurs with this 
clarification.

4. Investor Contact/Superfluous Language

    On page 60393 of the Preamble, Footnote 5 distinguishes the 
Automatic Reallocation Option from rebalancing of a participant's 
account and it instructs a TRAK Program participant to contact his or 
her Financial Consultant should a change in an investment allocation be 
warranted. Footnote 5 also states that a Financial Consultant is 
expected to initiate contact with Plan participants at least annually 
to encourage a comparison of the holdings in the Plan participant's 
portfolio against the Consulting Group's recommendation. Salomon Smith 
Barney wishes to inform the Department that in the case of retirement 
plans covering multiple participants, this contact typically may take 
the form of regular written communications between the Financial 
Consultant and the Plan investor.
    Moreover, the Department has stricken the last two sentences of 
Footnote 5, which due to a printing error, contain superfluous language 
also appearing on page 60393 of the Preamble, in the second and third 
sentences of the first paragraph under the description of the Automatic 
Reallocation Option.

5. Footnote 6

    On page 60394 of the Preamble, Footnote 6 states, in pertinent 
part, that there are 12 standard asset allocation models (the 
Allocation Models). Salomon Smith Barney explains that because it is 
constantly in the process of refining the basis for its asset 
allocation advice, the number of standard Allocation Models is expected 
to change as a result of such product modifications. To avoid an 
ongoing obligation to alter this number, Salomon Smith Barney suggests 
that the reference to the number ``12'' be deleted. Therefore, the 
Department has modified the Preamble, accordingly.

6. Condition (f)

    On page 60395 of the Preamble and page 60396 of the operative 
language of the proposed exemption, Section II(f)(3) of the General 
Conditions contains a notice provision that requires an Independent 
Plan Fiduciary to give Salomon Smith Barney at least 30 calendar days 
prior written notice of its intention to ``opt out'' of a new asset 
allocation model. Salomon Smith Barney wishes to clarify that an 
Independent Plan Fiduciary has a period of at least 30 calendar days 
during which to provide Salomon Smith Barney with written notice. 
Therefore, Salomon Smith Barney proposes that the notice period be 
described as ``at any time within the period of 30 calendar days'' 
prior to the Effective Date.
    In response to this comment, the Department has made the change 
suggested by Salomon Smith Barney.

7. Deletion of the Last Sentence of Paragraph (g)

    On pages 60394 and 60395 of the Preamble, paragraph (g) states that 
if the Independent Plan Fiduciary ``opts out,'' his or her Plan account 
will not be changed on the Effective Date. Paragraph (g) also states 
that, under such circumstances, the Allocation Model will remain at its 
current level or at such other level as the Independent Plan Fiduciary 
designates. However, the Automatic Reallocation Option will remain in 
effect for future changes in such participant's Allocation Model.
    Salomon Smith Barney explains that once a participant has opted out 
of the Automatic Reallocation Option, the participant's account is left 
at its current ``non-conforming'' allocation levels and it no longer 
resembles a Consulting Group Allocation Model. Because the Automatic 
Reallocation Option, in effect, terminates upon a participant's 
``opting out,'' Salomon Smith Barney requests the deletion of the last 
sentence of paragraph (g).
    In response to this comment, the Department has made the requested 
deletion to paragraph (g).

8. General Information

    On page 60395 of the proposed exemption, in the section captioned 
``General Information,'' paragraph (2) states that the proposed 
exemption, if granted, will not extend to transactions prohibited under 
section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code. The 
Department wishes to point out that the exemption will extend to 
transactions that are prohibited under section 406(b) of the Act and 
section 4975(c)(1)(E) and (F) of the Code and it has modified the final 
exemption, accordingly.

9. Scope of the Term ``Employee Benefit Plans''

    Salomon Smith Barney requests that the exemption cover transactions 
in the TRAK Program that are entered into not only by qualified plans 
that meet the requirements of section 401(k) of the Code, but also by 
any individual account pension plan that may be subject to Title I of 
the Act and established under section 403(b) of the Code (the Section 
403(b) Plan). To the extent that participants in Section 403(b) Plans 
invest their contributions in shares of the Funds, Salomon Smith Barney 
and its affiliates would like to make the TRAK Program available to 
them.
    The Department concurs with this comment and, on page 60396 of the 
proposed exemption, it has revised Section I.A. of the operative 
language by deleting the word ``or'' preceding the phrase ``a 
retirement plan for self-employed individuals (the Keogh Plan)'' and 
adding the phrase ``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).'' In addition, 
the Department has revised Footnote 11 of the proposed exemption to 
include a reference to the term ``Section 403(b) Plan'' after the term 
``Keogh Plan.'' Further, on page 60398 of the proposed exemption, the

[[Page 16490]]

Department has revised Section III(c)(3) of the Definitions as follows:

    (3) An individual covered under (i) a self-directed IRA or (ii) 
a Section 403(b) Plan, which invests in Trust shares.

    For further information regarding the comments or other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10574) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department are 
made available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, Room N-5638, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comments received, the Department has decided to 
grant the exemption subject to the modifications and clarifications 
described above.

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 exemption will extend to transactions prohibited under 
section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;
    (3) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, and the Procedures cited above, and based upon 
the entire record, the Department finds that the exemption is 
administratively feasible, in the interest of the plan and of its 
participants and beneficiaries and protective of the rights of 
participants and beneficiaries of the plan;
    (4) The exemption 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 is subject to the express condition that the Summary of 
Facts and Representations set forth in the notice of proposed exemption 
relating to PTE 92-77, as amended by PTE 94-50 and this notice, 
accurately describe, where relevant, the material terms of the 
transactions to be consummated pursuant to this exemption.

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 
above, the Department hereby amends PTE 94-50 as follows:

Section I. Covered Transactions

    A. 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) 
\5\ 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).
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    \5\ The employee benefit plan, the IRA, the Keogh Plan and the 
Section 403(b) Plan are collectively referred to herein as the 
Plans.
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    B. 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 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

[[Page 16491]]

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 
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, the percentage of that Portfolio's net assets invested in 
such securities will not exceed one percent.
    (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.\6\
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    \6\ 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 fees and expenses to be paid by the Plan, including the 
fees paid directly to Salomon Smith Barney or to other third parties 
and/or indirectly through the Trust to Smith Barney.
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    (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 PTE 94-50 as well as the proposed exemption and the 
final exemption pertaining to the exemptive relief described herein.
    (2) If accepted as an investor in the TRAK Program, an Independent 
Plan Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in 
writing, prior to purchasing Trust shares that such fiduciary has 
received copies of the documents described above in subparagraph (k)(1) 
of this Section.
    (3) With respect to a Section 404(c) Plan, written acknowledgement 
of the receipt of such documents 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 16492]]

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 subsections (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 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 subsection, 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.
    (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 (A) a self-directed IRA, or (B) 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.

Section IV. Effective Dates

    This exemption is effective as of July 31, 1993 with respect to the 
transactions described in Section I.A. and B.(1). of this grant notice. 
It is also effective as of March 29, 1994 for transactions involving a 
daily-traded collective investment fund that was added to the TRAK 
Program pursuant to PTE 94-50. With respect to Section I.B(2) and 
Section II(f)(1)-(4) of the General Conditions of this grant notice, 
which set forth the amendments to PTE 94-50, this exemption is 
effective as of November 9, 1998.
    The availability of this 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 application 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 the case of continuing 
transactions, if any of the material facts or representations described 
in the application 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 this exemption, refer to 
the proposed exemption and PTEs 92-77 and 94-50 which are cited above.


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    Signed at Washington, DC, this 30th day of March, 1999.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-8226 Filed 4-2-99; 8:45 am]
BILLING CODE 4510-29-P