35138 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

1PTE 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which it superseded [i.e., PTE 94–50 (59 FR 32024,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

Code) of the Client Plan sponsor or of

the fiduciary responsible for the

decision to authorize or terminate

authorization for transactions described

in Section I. However, if such

individual is a director of the Client

Plan sponsor or of the responsible

fiduciary, and if he or she abstains from

participation in (A) the choice of the

Plan’s investment manager/adviser and

(B) the decision to authorize or

terminate authorization for transactions

described in Section I, then Section II

(g)(2)(iii) shall not apply.

(3) 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.

(4) In the case of existing Client Plans

in a Pooled Fund, at the time the Asset

Manager provides such Client Plans

with initial notice pursuant to this

exemption, the Asset Manager will

notify the fiduciaries of such Client

Plans that they must advise the Asset

Manager, in writing, if they are not

independent, within the meaning of this

Section II (g).

(h) The term ‘‘security’’ shall have the

same meaning as defined in section

2(36) of the Investment Company Act of

1940 (the 1940 Act), as amended (15

U.S.C. 80a–2(36)(1996)). For purposes of

this exemption, mortgage-backed or

other asset-backed securities rated by a

Rating Organization will be treated as

debt securities.

(i) The term ‘‘Eligible Rule 144A

Offering’’ shall have the same meaning

as defined in SEC Rule 10f–3(a)(4) (17

CFR 270. 10f–3(a)(4)) under the 1940

Act.

(j) The term ‘‘qualified institutional

buyer’’ or ‘‘QIB’’ shall have the same

meaning as defined in SEC Rule 144A

(17 CFR 230.144A(a)(1)) under the 1933

Act.

(k) The term ‘‘Rating Organizations’’

means Standard & Poor’s Rating

Services, Moody’s Investors Service,

Inc., Duff & Phelps Credit Rating Co., or

Fitch IBCA, Inc., or their successors.

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. 00–13641 Filed 5–31–00; 8:45 am]

BILLING CODE 4510–29–P

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.

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

Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices 35139

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.

2The 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.

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 SubAdviser), 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.

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.

35140 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

3According 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.

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

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 widelyused 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

Because the Sub-Adviser will

purchase and sell Citigroup Common

Stock to approximate the performance

of an index rather than reflect the SubAdviser’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 SubAdvisers 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

Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices 35141

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.

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 activelymanaged portion and a distinct,

passively-managed portion, held less

than one percent of the their total assets

in Citigroup Common Stock.

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;

35142 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

(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-fordollar 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

Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices 35143

5The 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.

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

(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 SubAdvisers.

(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

35144 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

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