Proposed Exemptions; D-11318, Barclays Global Investors, N.A., (BGI) and Its Investment Advisory Affiliates, Including Barclays Global Fund Advisors (BGFA; Together, the Applicants); and D-11420 BlackRock, Inc. (Black Rock) and Merrill Lynch & Co. (Merrill Lynch) (Collectively, the Applicants), 51668-51685 [E7-17676]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 72, Number 174 (Monday, September 10, 2007)]
[Notices]
[Pages 51668-51685]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-17676]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions; D-11318, Barclays Global Investors, N.A., 
(BGI) and Its Investment Advisory Affiliates, Including Barclays Global 
Fund Advisors (BGFA; Together, the Applicants); and D-11420 BlackRock, 
Inc. (Black Rock) and Merrill Lynch & Co. (Merrill Lynch) 
(Collectively, the Applicants)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Barclays Global Investors, N.A., (BGI) and Its Investment Advisory 
Affiliates, Including Barclays Global Fund Advisors (BGFA; Together, 
the Applicants), Located in San Francisco, California

[Application No. D-11318]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR 2570, 
subpart B (55 FR 32836, 32847, August 10, 1990).
Section I. Transactions Involving Open-End Management Investment 
Companies Other Than Exchange-Traded Funds
    Effective as of September 10, 2007, the restrictions of sections 
406(a) and (b) of the Act, section 8477(c)(1) and (c)(2) of FERSA, and 
the taxes imposed by section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (F) of the Code, shall not apply to the 
acquisition, sale or exchange by an Account of shares, including 
through in-kind redemptions of shares or acquisitions of shares in 
exchange for Account assets transferred in-kind from an Account, of an 
open-end investment company (``the Fund'') registered under the 
Investment Company Act of 1940 (the 1940 Act), other than an exchange-
traded fund (an ``ETF''), the Investment Adviser for which is also a 
fiduciary with respect to the Account (or an affiliate of such 
fiduciary) (hereinafter, BGI and all its affiliates will be referred to 
as ``Investment Adviser''), and the receipt of fees for acting as an 
investment adviser for such Funds, as well as fees for providing other 
services to the Funds which are ``Secondary Services,'' as defined 
herein, in connection with the investment by the Accounts in shares of 
the Funds, provided that the conditions set forth in Section II are 
met.
Section II. Conditions
    (a) The Account does not pay a sales commission or other similar 
fees to the Investment Adviser or its affiliates in connection with 
such acquisition, sale, or exchange.
    (b) The Account does not pay a redemption or similar fee to the 
Investment Adviser in connection with the sale by the Account to the 
Fund of such shares, and the existence of any other redemption fee is 
disclosed in the Fund's prospectus in effect at all times.
    (c) The Account does not pay an investment management, investment 
advisory or similar fee with respect to

[[Page 51669]]

Account assets invested in Fund shares for the entire period of such 
investment. This condition does not preclude the payment of investment 
advisory fees by the Fund under the terms of its investment advisory 
agreement adopted in accordance with section 15 of the Investment 
Company Act of 1940 (the 1940 Act). This condition also does not 
preclude payment of an investment advisory fee by the Account under the 
following circumstances:
    (1) For Accounts billed in arrears, an investment advisory fee may 
be paid based on total Account assets from which a credit has been 
subtracted representing the Account's pro rata share of investment 
advisory fees paid by the Fund;
    (2) For Accounts billed in advance, the Investment Adviser must 
employ a reasonably designed method to ensure that the amount of the 
prepaid fee that constitutes the fee with respect to the Account assets 
invested in the Fund shares:
    (A) Is anticipated and subtracted from the prepaid fee at the time 
of payment of such fee,
    (B) Is returned to the Account no later than during the immediately 
following fee period or
    (C) Is offset against the prepaid fee for the immediately following 
fee period or for the fee period immediately following thereafter. For 
purposes of this paragraph, a fee shall be deemed to be prepaid for any 
fee period if the amount of such fee is calculated as of a date not 
later than the first day of such period; or
    (3) An investment advisory fee may be paid based on total plan 
assets if the Account will receive a cash rebate of such Account's 
proportionate share of all fees charged to the Fund by the Investment 
Adviser for investment management, investment advisory or similar 
services no later than one business day after the receipt of such fees 
by the Investment Adviser.
    (d) The rebating, crediting, or offsetting of any fees in paragraph 
(c) is audited at least annually by the Investment Adviser through a 
system of internal controls to verify the accuracy of the fee mechanism 
adopted by the Investment Adviser under paragraph (c).
    (e) The combined total of all fees received by the Investment 
Adviser for the provision of services to an Account, and for the 
provision of any services to a Fund in which an Account may invest, is 
not in excess of ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act;
    (f) The Investment Adviser and its affiliates do not receive any 
fees payable pursuant to Rule 12b-1 under the 1940 Act in connection 
with the transactions covered by this proposed exemption;
    (g) In advance of any initial investment in a Fund by a Separately 
Managed Account or by a new Plan investor in a Pooled Fund, a Second 
Fiduciary with respect to that Plan, who is independent of and 
unrelated to the Investment Adviser or any affiliate thereof, receives 
in written or in electronic form, full and detailed written disclosure 
of information concerning such Fund(s). The disclosure described in 
this paragraph (g) includes, but is not limited to:
    (1) A current prospectus issued by each of the Fund(s);
    (2) A statement describing the fees for investment advisory or 
similar services, any Secondary Services, and all other fees to be 
charged to or paid by the Account and by the Fund(s), including the 
nature and extent of any differential between the rates of such fees;
    (3) The reasons why the Investment Adviser may consider such 
investment to be appropriate for the Account;
    (4) A statement describing whether there are any limitations 
applicable to the Investment Adviser with respect to which Account 
assets may be invested in shares of the Fund(s) and, if so, the nature 
of such limitations, and
    (5) A copy of the proposed exemption and the final exemption if it 
is published in the Federal Register, and any other reasonably 
available information regarding the transaction described herein that 
the Second Fiduciary requests.
    (h) After receipt and consideration of the information referenced 
in paragraph (g), the Second Fiduciary of the Separately Managed 
Account or the new Plan investing in a Pooled Fund approves in writing 
the investment of Plan assets in each particular Fund and the fees to 
be paid by a Fund to the Investment Adviser.
    (i)(1) In the case of existing Plan investors in a Pooled Fund, 
such Pooled Fund may not engage in any covered transactions pursuant to 
this proposed exemption, unless the Second Fiduciary receives in 
written or in electronic form, the information described in paragraph 
(2) of this paragraph (i) not less than 30 days prior to the Investment 
Adviser's engaging in the covered transactions on behalf of the Pooled 
Fund pursuant to this proposed exemption.
    (2) The information required by paragraph (1) of this section 
includes:
    (A) A notice of the Pooled Fund's intent to engage in the covered 
transactions described herein, a copy of the notice of proposed 
exemption, and a copy of the final exemption if it is published in the 
Federal Register;
    (B) Any other reasonably available information regarding the 
covered transactions that a Second Fiduciary requests; and
    (C) A Termination Form, within the meaning of paragraph (j).
    Approval to engage in any covered transactions pursuant to this 
proposed exemption may be presumed notwithstanding that the Investment 
Adviser does not receive any response from a Second Fiduciary.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to the Investment Adviser will 
be subject to an annual reauthorization wherein any such prior 
authorization shall be terminable at will by an Account, without 
penalty to the Account, upon receipt by the Investment Adviser of 
written notice of termination. A form expressly providing an election 
to terminate the authorization (``Termination Form'') with instructions 
on the use of the form will be supplied to the Second Fiduciary no less 
than annually, in written or in electronic form. The instructions for 
the Termination Form will include the following information:
    (1) The authorization is terminable at will by the Account, without 
penalty to the Account, upon receipt by the Investment Adviser of 
written notice from the Second Fiduciary. Such termination will be 
effected by the Investment Adviser by selling the shares of the Fund 
held by the affected Account within one business day following receipt 
by the Investment Adviser of the Termination Form or any other written 
notice of termination; provided that if, due to circumstances beyond 
the control of the Investment Adviser, the sale cannot be executed 
within one business day, the Investment Adviser shall have one 
additional business day to complete such sale; and provided further 
that, where a Plan's interest in a Pooled Fund cannot be sold within 
this time frame, the Plan's interest will be sold as soon as 
administratively practicable;
    (2) Failure of the Second Fiduciary to return the Termination Form 
will result in continued authorization of the Investment Adviser to 
engage in the covered transactions on behalf of an Account; and
    (3) The identity of BGI, the asset management affiliate of BGI, and 
the affiliated investment advisers, and the address of the asset 
management affiliate of BGI. The instructions will state that this 
exemption is not available, unless the fiduciary of each Plan 
participating in the covered transactions as an investor in a Pooled

[[Page 51670]]

Fund is, in fact, independent of the Investment Adviser. The 
instructions will also state that the fiduciary of each such Plan must 
advise the asset management affiliate of BGI, in writing, if it is not 
a ``Second Fiduciary,'' as that term is defined, below, in Section 
V(l).
    However, if the Termination Form has been provided to the Second 
Fiduciary pursuant to this paragraph or paragraphs (i), (k), or (l), 
the Termination Form need not be provided again for an annual 
reauthorization pursuant to this paragraph unless at least six months 
has elapsed since the form was previously provided.
    (k) In situations where the Fund-level fee is neither rebated nor 
credited against the Account-level fee, The Second Fiduciary of each 
Account invested in a particular Fund will receive full disclosure, in 
written or in electronic form, in a statement which is separate from 
the Fund prospectus, of any proposed increases in the rates of fees for 
investment advisory or similar services, and any Secondary Services, at 
least 30 days prior to the implementation of such increase in fees, 
accompanied by a Termination Form. In situations where the Fund-level 
fee is rebated or credited against the Account-level fee, the Second 
Fiduciary will receive full disclosure, in a Fund prospectus or 
otherwise, in the same time and manner set forth above, of any 
increases in the rates of fees to be charged by the Investment Adviser 
to the Fund for investment advisory services. Failure to return the 
Termination Form will be deemed an approval of the increase and will 
result in the continued authorization of the Investment Adviser to 
engage in the covered transactions on behalf of an Account.
    (l) In the event that the Investment Adviser provides an additional 
Secondary Service to a Fund for which a fee is charged or there is an 
increase in the rate of any fees paid by the Funds to the Investment 
Adviser for any Secondary Services resulting from either an increase in 
the rate of such fee or from a decrease in the number or kind of 
services provided by the Investment Adviser for such fees over an 
existing rate for such Secondary Service in connection with a 
previously authorized Secondary Service, the Second Fiduciary will 
receive notice, at least 30 days in advance of the implementation of 
such additional service or fee increase, in written or in electronic 
form, explaining the nature and the amount of such services or of the 
effective increase in fees of the affected Fund. Such notice shall be 
accompanied by a Termination Form. Failure to return the Termination 
Form will be deemed an approval of the Secondary Service and will 
result in continued authorization of the Investment Adviser to engage 
in the covered transactions on behalf of the Account.
    (m) On an annual basis, the Second Fiduciary of an Account 
investing in a Fund, will receive, in written or in electronic form:
    (1) A copy of the current prospectus for the Fund and, upon such 
fiduciary's request, a copy of the Statement of Additional Information 
for such Fund which contains a description of all fees paid by the Fund 
to the Investment Adviser;
    (2) A copy of the annual financial disclosure report of the Fund in 
which such Account is invested, which includes information about the 
Fund portfolios as well as audit findings of an independent auditor of 
the Fund, within 60 days of the preparation of the report; and
    (3) With respect to each of the Funds in which an Account invests, 
in the event such Fund places brokerage transactions with the 
Investment Adviser, the Investment Adviser will provide the Second 
Fiduciary of such Account, in the same manner described above, at least 
annually with a statement specifying the following (and responses to 
oral or written inquiries of the Second Fiduciary as they arise):
    (A) The total, expressed in dollars, brokerage commissions of each 
Fund's investment portfolio that are paid to the Investment Adviser by 
such Fund;
    (B) The total, expressed in dollars, of brokerage commissions of 
each Fund's investment portfolio that are paid by such Fund to 
brokerage firms unrelated to the Investment Adviser;
    (C) The average brokerage commissions per share, expressed as cents 
per share, paid to the Investment Adviser by each portfolio of a Fund; 
and
    (D) The average brokerage commissions per share, expressed as cents 
per share, paid by each portfolio of a Fund to brokerage firms 
unrelated to the Investment Adviser.
    (n) In all instances in which the Investment Adviser provides 
electronic distribution of information to Second Fiduciaries who have 
provided electronic mail addresses, such electronic disclosure will be 
provided in a manner similar to the procedures described in 29 CFR 
section 2520.104b-1(c).
    (o) Any Separately Managed Account does not hold assets of a Plan 
sponsored by the Investment Adviser or an affiliate. If a Pooled Fund 
holds assets of a Plan or Plans sponsored by the Investment Adviser or 
an affiliate, the total assets of all such Plans shall not exceed 10% 
of the total assets of such Pooled Fund.
    (p) In-kind transactions with an Account shall only involve 
publicly-traded securities for which market quotations are readily 
available, as determined pursuant to procedures established by the 
Funds under Rule 2a-4 of the 1940 Act, and cash in the event that the 
aforementioned securities are odd lot securities, fractional shares, or 
accruals on such securities. Such securities will not include:
    (1) Securities that, if publicly offered or sold, would require 
registration under the Securities Act of 1933;
    (2) Securities issued by entities in countries that (i) restrict or 
prohibit the holding of securities by non-nationals other than through 
qualified investment vehicles, such as the Funds, or (ii) permit 
transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange;
    (3) Certain portfolio positions (such as forward foreign currency 
contracts, futures and options contracts, swap transactions, 
certificates of deposit and repurchase agreements), that, although 
liquid and marketable, involve the assumption of contractual 
obligations, require special trading facilities, or can be traded only 
with the counter-party to the transaction to effect a change in 
beneficial ownership;
    (4) Cash equivalents (such as certificates of deposit, commercial 
paper, and repurchase agreements);
    (5) Other assets that are not readily distributable (including 
receivables and prepaid expenses), net of all liabilities (including 
accounts payable); and
    (6) Securities subject to ``stop transfer'' instructions or similar 
contractual restrictions on transfer.
    (q) Subject to the exceptions described in section (p) above, in 
the case of an in-kind exchange of assets [in-kind redemptions and in-
kind transfers of Plan assets] between an Account and a Fund (other 
than an ETF), the Account will receive its pro rata portion of the 
securities of the Fund equal in value to that of the number of shares 
redeemed, or the Fund shares having a total net asset value (NAV) equal 
to the value of the assets transferred on the date of the transfer, as 
determined in a single valuation, using sources independent of the 
Investment Adviser, performed in the same manner as it would for any 
other person or entity at the close of the same business day in 
accordance with the procedures established by the Fund pursuant to Rule 
2a-4 under the 1940 Act, and the then-existing valuation procedures

[[Page 51671]]

established by its Board of Directors or Trustees, as applicable for 
the valuation of such assets, that are in compliance with the rules 
administered by the Securities and Exchange Commission (the SEC). In 
the case of a redemption, the value of the securities and any cash 
received by the Account for each redeemed Fund share equals the NAV of 
such share at the time of the transaction. In the case of any other in-
kind exchange, the value of the Fund shares received by the Account 
equals the NAV of the transferred securities and any cash on the date 
of the transfer.
    (r) The Investment Adviser shall provide the Second Fiduciary with 
a written confirmation containing information necessary to perform a 
post-transaction review of any in-kind transaction so that the material 
aspects of such transaction, including pricing, can be reviewed. Such 
information must be furnished no later than thirty (30) business days 
after the completion of the in-kind transaction. This information shall 
include:
    (1) With respect to securities either transferred by, or received, 
by an Account in-kind in exchange for Fund shares,
    (i) the identity of each security either received by the Account 
pursuant to the redemption, or transferred to the Fund by the Account, 
(and the related aggregate dollar value of all securities) determined 
in accordance with Rule 2a-4 under the 1940 Act and the then-existing 
procedures established by the Board of Trustees of the Fund (using 
sources independent of the Investment Adviser); and
    (ii) the current market price of each security transferred or 
received in-kind by the Account as of the date of the in-kind transfer.
    (2) With respect to Fund shares either transferred by, or received 
by, an Account in-kind in exchange for securities,
    (i) the number of Fund shares held by the Account immediately 
before the redemption (and the related per share net asset value and 
the total dollar value of Fund shares, determined in accordance with 
Rule 2a-4 under the 1940 Act, using sources independent of the 
Investment Adviser); or
    (ii) the number of Fund shares held by the Account immediately 
after the in-kind transfer (and the related per share net asset value 
of the Fund shares received and the total dollar value of Fund shares, 
determined in accordance with Rule 2a-4 under the 1940 Act using 
sources independent of the Investment Adviser).
    (3) The identity of each pricing service or market-maker consulted 
in determining the value of the securities.
    (s) Prior to the consummation of an in-kind transaction, the 
Investment Adviser must document in writing and determine that such 
transaction is fair to the Account and comparable to, and no less 
favorable than, terms obtainable at arm's-length between unaffiliated 
parties, and that the in-kind transaction is in the best interests of 
the Account and the participants and beneficiaries of the participating 
Plans.
    (t) All of the Accounts' other dealings with the Funds, the 
Investment Adviser, or any affiliated person thereof, are on terms that 
are no less favorable to the Account than such dealings are with other 
shareholders of the Funds.
    (u) BGI and its affiliates, as applicable, maintain, or cause to be 
maintained, for a period of six
    (6) years from the date of any covered transaction such records as 
are necessary to enable the persons, described, below, in Section 
II(v), to determine whether the conditions of this exemption have been 
met, except that--
    (1) No party in interest with respect to a Plan which engages in 
the covered transactions, other than BGI, and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if 
such records are not maintained, or not available for examination, as 
required, below, by Section II(v); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because due to circumstances beyond the control of 
BGI or its affiliate, as applicable, such records are lost or destroyed 
prior to the end of the six-year period.
    (v)(1) Except as provided, below, in Section II(v)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in Section II(t) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any Plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a Plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a Plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described, above, in Section II(v)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the Investment 
Adviser, or commercial or financial information which is privileged or 
confidential; and
    (3) Should the Investment Adviser refuse to disclose information on 
the basis that such information is exempt from disclosure, the 
Investment Adviser shall, by the close of the thirtieth (30th) day 
following the request, provide a written notice advising that person of 
the reasons for the refusal and that the Department may request such 
information.
Section III. Transactions Involving Exchange-Traded Funds
    Effective as of September 10, 2007, the restrictions of sections 
406(a) and (b) of the Act, section 8477(c)(1) and (c)(2) of FERSA, and 
the taxes imposed by section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (F) of the Code, shall not apply to the 
following transactions involving an Account and an ETF, the Investment 
Adviser for which is also a fiduciary with respect to the Account (or 
an affiliate of such fiduciary) (i.e., ``Investment Adviser''), and the 
receipt of fees for acting as an investment adviser for such ETF, as 
well as fees for providing other services to the ETF which are 
``Secondary Services,'' as defined herein, in connection with the 
investment by the Account in shares of the ETF, provided that the 
conditions set forth in Section IV are met:
    (a) The acquisition, sale or exchange by an Account of ETF shares, 
including through in-kind exchanges, in a principal transaction with a 
broker-dealer not an affiliate of the Investment Adviser, registered 
under the Securities Exchange Act of 1934, including an Authorized 
Participant.
    (b) The acquisition or sale by an Account of ETF shares on a 
national securities exchange when a broker-dealer not an affiliate of 
the Investment Adviser, registered under the Securities Exchange Act of 
1934, including an Authorized Participant, acts as agent for the 
Account.
    (c) The acquisition, sale or exchange by an Account of ETF shares, 
including through in-kind exchanges, through an Authorized Participant, 
acting as an agent dealing directly with the ETF, and the Account is 
exchanging securities and/or cash for the ETF shares during a Creation 
process, or exchanging ETF

[[Page 51672]]

shares for securities and/or cash during a Redemption process.
Section IV. Conditions
    (a)(1) In the case of a principal transaction described in Section 
III(a), the specific terms of the transaction are fixed at the time the 
Account agrees to exchange the in-kind assets with the broker-dealer.
    (2) In the case of a transaction described in Section III(c), the 
value of the securities transferred to the ETF, in exchange for ETF 
shares issued at the closing ETF NAV at the end of the business day, 
and the value of the securities received from the ETF, in exchange for 
ETF shares redeemed at the closing ETF NAV at the end of the business 
day is: (A) Determined pursuant to a single valuation using sources 
independent of the Investment Adviser; and (B) Performed in the same 
manner as it would for any other person or entity at the end of the 
same business day. Such valuation is made in accordance with procedures 
established by the ETF pursuant to Rule 2a-4 under the 1940 Act, and 
the then existing valuation procedures established by its Board of 
Directors or Trustees, as applicable, that are in compliance with the 
rules administered by the SEC.
    In the case of a redemption, the value of the securities and any 
cash received by the Account for each redeemed ETF share equals the NAV 
of such share at the time of the transaction. In the case of any other 
in-kind exchange, the value of the ETF shares received by the Account 
equals the NAV of the transferred securities and any cash on the date 
of the transfer.
    (b) All ETFs are either Index Funds or Model-Driven Funds.
    (c) The Authorized Participant is not an affiliate of the 
Investment Adviser.
    (d) Conditions (a) through (p), and (r) through (v) of Section II 
have been met. For purposes of this Section IV(d), the term ``Fund'' in 
Section II includes an ETF.
Section V. Definitions
    (a) The term ``Account'' means either a Separately Managed Account 
or a Pooled Fund in which investments are made by plans described in 
section 3(3) of the Act and/or section 4975(e)(1) of the Code and a 
plan covered by The Federal Employees' Retirement System Act of 1986 
(FERSA).
    (b) An ``affiliate'' of a person includes any person directly or 
indirectly through one or more intermediaries, controlling, controlled 
by, or under common control with the person; any officer of, director 
of, highly compensated employee (within the meaning of Code section 
4975(e)(2)(H)) of, or partner in any such person; and any corporation 
or partnership of which such person is an officer, director, partner or 
owner, or highly compensated employee (within the meaning of Code 
section 4975(e)(2)(H)).
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Authorized Participant'' means a broker-dealer 
registered under the Securities Exchange Act of 1934 which may acquire 
or redeem ETF Shares directly from ETFs. Such Authorized Participant is 
not an affiliate of the Investment Adviser.
    (e) The term ``Fund'' means any open end investment company 
registered under the Investment Company Act of 1940, including 
exchange-traded funds.
    (f) The term ``Index'' means a securities index that represents the 
investment performance of a specific segment of the public market for 
equity or debt securities in the United States and/or foreign 
countries, but only if--
    (1) The organization creating and maintaining the index is--
    (A) Engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients;
    (B) A publisher of financial news or information;
    (C) A public securities exchange or association of securities 
dealers; and,
    (2) The index is created and maintained by an organization 
independent of the Applicants and their affiliates; and,
    (3) The index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of the 
Applicants.
    (g) The term ``Index Fund'' means any investment fund, sponsored, 
maintained, trusteed or managed by the Applicants, in which one or more 
investors invest, and--
    (1) Which is designed to track the rate of return, risk profile, 
and other characteristics of an independently maintained securities 
index by either (i) replicating the same combination of securities that 
compose such index, or (ii) sampling the securities that compose such 
index based on objective criteria and data;
    (2) For which the Applicants do not use their discretion, or data 
within their control, to affect the identity or amount of securities to 
be purchased or sold; and
    (3) That involves no agreement, arrangement or understanding 
regarding the design or operation of the Fund which is intended to 
benefit the Applicants, their affiliates, or any party in which the 
Applicants or their affiliates have an interest.
    (h) The term ``Investment Adviser'' means Barclays Global 
Investors, N.A. or any of its current or future affiliates.
    (i) The term ``Model-Driven Fund'' means any investment fund, 
sponsored, maintained, trusteed or managed by the Applicants, in which 
one or more investors invest, and--
    (1) Which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third party data not 
within the control of the Applicants, to transform an index (as defined 
in (f), above); and
    (2) That involves no agreement, arrangement or understanding 
regarding the design or operation of the fund or the utilization of any 
specific objective criteria which is intended to benefit the 
Applicants, their affiliates, or any party in which the Applicants or 
their affiliates may have an interest.
    (j) The term ``Plan'' means a plan described in section 3(3) of the 
Act, a plan described in section 4975(e)(1) of the Code, and a plan 
covered by FERSA.
    (k) The term ``Pooled Fund'' means any commingled fund sponsored, 
maintained, advised or trusteed by the Investment Adviser, which fund 
holds Plan assets.
    (l) The term ``Second Fiduciary'' means a fiduciary of a Plan who 
is independent of and unrelated to the Investment Adviser. For purposes 
of this exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to the Investment Adviser if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Investment Adviser;
    (2) Such fiduciary, or any officer, director, partner, or employee 
of the fiduciary is an officer, director, partner, employee or 
affiliate of the Investment Adviser; or
    (3) Such fiduciary directly or indirect receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this exemption. If an 
officer, director, partner, affiliate or employee of the Investment 
Adviser is a director of such Second Fiduciary, and if he or she 
abstains from participation in (A) the choice of the Plan's investment 
adviser, (B) the approval for the acquisition, sale, holding, and/or 
exchange of Fund shares by such Plan, and (C) the

[[Page 51673]]

approval of any change in fees charged to or paid by the Plan in 
connection with any of the transactions described herein, then 
subparagraph (2) above shall not apply.
    (m) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory or similar service which is 
provided by the Investment Adviser to the Funds, including but not 
limited to custodial, accounting, brokerage, administrative or any 
other similar service.
    (n) The term ``Separately Managed Account'' means any Account other 
than a Pooled Fund, and includes single-employer Plans.
    (o) The term ``Creation'' or ``Redemption'' refers to a transaction 
where the ETF is the buyer or seller of large-blocks of ETF shares.

Summary of Facts and Representations

    1. BGI is a national banking association headquartered in San 
Francisco, California. BGI serves as an investment manager and 
fiduciary for employee benefit plans governed by the Act which are 
invested in both separately managed accounts and pooled funds. BGI also 
manages certain assets for the Federal Thrift Savings Plan established 
pursuant to the provisions of FERSA. The employee benefit plans to be 
covered by this exemption, including the Thrift Savings Plan, will be 
referred to as ``Plans.''
    2. BGI seeks an exemption under the Act, as amended, the Code, and 
FERSA, for the investment of Plan Account assets in certain open-end 
investment companies registered under the 1940 Act (i.e., ``Funds''), 
some of which are exchange-traded funds (i.e., ``ETFs''), managed or 
advised by BGI or its investment advisory affiliates, including BGFA.
    3. The Applicants represent that the proposed transactions may 
violate the Act, the Code, and/or FERSA, because the investment of Plan 
assets in the Funds may constitute a prohibited furnishing of services, 
or transfer of Plan assets to a party in interest or a fiduciary.
    4. The relief sought by the Applicants involves the investment of 
Separately Managed Accounts, as well as the assets of Pooled Funds, in 
both ``iShares[reg],'' which are exchange-traded funds (i.e., ETFs) 
advised by BGFA, and other open-end investment companies also advised 
by BGFA. The Applicants represent that BGFA is an investment adviser 
registered under the Investment Advisers Act of 1940. BGFA provides 
investment advice to various accounts and funds, including as an 
investment adviser or sub-adviser to certain mutual funds and exchange-
traded funds.
    5. An ETF is an open-end investment company registered under the 
1940 Act. Shares issued by each ETF are registered under the Securities 
Act of 1933. ETF shares are continuously offered to the public in the 
secondary market through securities exchanges and can be purchased and 
redeemed on a daily basis. Such shares can be bought and sold by 
investors on a securities exchange, through brokers, acting as agent, 
throughout the trading day like other shares of publicly-traded 
securities. In such a case, the investors would pay the price then 
prevailing on the exchange plus customary brokerage commissions.\1\ 
There is no minimum investment for such secondary market transactions.
---------------------------------------------------------------------------

    \1\ In Advisory Opinion 2002-05A (June 7, 2002), the Department 
considered whether Prohibited Transaction Exemption 77-4 (PTE 77-4, 
42 FR 18732, April 8, 1977) applies to purchases or sales of ETF 
shares through unaffiliated brokers. The Department stated that the 
term ``sales commission'' as used in section II(a) of PTE 77-4 does 
not include brokerage commissions paid to a broker in connection 
with purchases or sales of shares of registered open-end investment 
companies on an exchange if the broker is unaffiliated with the 
fund, its principal underwriter, investment adviser or any affiliate 
thereof.
---------------------------------------------------------------------------

    6. Alternatively, an investor who buys or sells iShares may engage 
in the transaction directly with the broker, which executes as 
principal. Under this circumstance, the broker (which may or may not be 
an Authorized Participant) may buy the iShares for its own inventory or 
sell the iShares from its own inventory (on a principal basis), in 
which case the customer would pay a mark-up or a mark-down (dealer 
spread) that is part of the sales price. The Account in this case 
specifies a set number of iShares that it wants to buy from, or sell 
to, the broker. The Account and the broker negotiate upfront and agree 
upon (i) what the purchase or sale price of the iShares will be and 
(ii) whether the Account will pay or receive (as the case may be) cash, 
in-kind securities, or a combination of both. Thus, the specific terms 
of the transaction are fixed at the time the parties agree to enter the 
transaction.
    7. The ETF purchases and redeems shares at the ETF's then net asset 
value (i.e., ``NAV'') only in large blocks, generally through an in-
kind tender of a basket of securities by a broker-dealer called an 
``Authorized Participant.'' \2\ Only Authorized Participants may 
acquire or redeem iShares directly from iShares Funds, and only in 
large block sizes (e.g., 50,000 shares). Such an acquisition and 
redemption are called ``Creation'' and ``Redemption,'' respectively. An 
Authorized Participant may acquire or redeem iShares as principal for 
its own account, or as agent on behalf of a customer in a transaction 
directly with an ETF.
---------------------------------------------------------------------------

    \2\ Where purchases and redemptions involve an in-kind 
transaction, cash may be exchanged to make up for any difference 
between securities exchanged and the NAV of a Fund.
---------------------------------------------------------------------------

    8. To effect a purchase or sale through an Authorized Participant 
on an agency basis where the buyer or seller is the Fund and the 
process is by creation or redemption, the Investment Adviser, acting as 
a fiduciary, may approach an Authorized Participant who is not one of 
the Applicants (or an affiliate) to purchase or sell ETF shares on 
behalf of an Account. As part of this process, the Authorized 
Participant may purchase ETF shares on behalf of an Account by 
assembling a ``creation unit'' of the securities held by the ETF, such 
as S&P 500 securities in appropriate weights for an S&P 500 Index ETF. 
An Account may provide all or part of the securities necessary to make 
up a ``creation unit.'' For creation units, the Account transfers cash, 
in-kind securities, or a mix of cash and in-kind securities to the Fund 
in exchange for iShares using that day's NAV, at the close of business, 
as determined by the ETF in accordance with the rules governing 
registered investment companies. For redemptions, the Plan transfers 
the iShares to the ETF in exchange for in-kind securities and cash, if 
necessary, using the valuation of the assets used by the ETF in 
accordance with the rules governing registered investment companies. 
The purchase and sale price is the NAV of iShares next determined after 
an order is placed and is the same price that is paid or received for 
the iShares by any other investor at that time dealing with the ETF. 
Thus, if an order is placed for shares during the day, it is priced at 
the NAV at the end of that day. The basket of securities to be 
delivered or received on account of a creation or redemption is 
specified by the ETF to all Authorized Participants in advance each day 
because the securities ``called for'' each day may be driven by the 
output of a model which may require deviations from the underlying 
index. The amount of cash needed to round out the order would be 
determined as of the time the NAV is calculated based on the difference 
between the value of the in-kind securities and the Fund NAV as of the 
time that the NAV is calculated.
    9. The Applicants represent that the decision as to which method is 
used to effect a purchase or sale is a fiduciary decision which is 
governed by the prudence and exclusive benefit requirements of the Act. 
Because the

[[Page 51674]]

transactions are never executed through an affiliated broker, the 
Applicants' affiliates do not benefit from the trading. The fiduciary 
makes the decision for the Plan, as it makes all trading decisions, and 
bases the decisions on the most cost-effective method for the Plan, 
where the Plan will receive the most advantageous prices available for 
the securities with the lowest attendant transaction fees.
    10. An Authorized Participant's arrangement with an ETF distributor 
\3\ is subject to an agreement between those two parties. Where the 
Authorized Participant does not have the requisite ETF shares in its 
possession, or prefers not to trade such ETF shares, it may assemble a 
creation unit in exchange for ETF shares, pursuant to its arrangement 
with the ETF distributor.
---------------------------------------------------------------------------

    \3\ The ``distributor'' of a registered investment company is a 
statutory term under the 1940 Act. The distributor of an ETF or 
other registered investment company is a registered broker-dealer 
that accepts orders to purchase or redeem Fund shares from 
intermediaries on behalf of the Fund.
---------------------------------------------------------------------------

    11. The Applicants represent that the transactions that would be 
covered by the proposed exemption are substantially similar to the 
transactions permitted under PTE 77-4 and similar individual 
exemptions.\4\ As described below, the Investment Adviser will follow 
similar procedures to those set forth in PTE 77-4 in order to avoid 
duplicative investment management and advisory fees, and procedures 
similar to PTE 86-128 and other individual exemptions with respect to 
obtaining consent for the transactions described herein. In situations 
where the Fund-level fee is neither rebated nor credited against the 
Account-level fee, there must be separate disclosure (apart from the 
prospectus) of any proposed increases in the rates of fees for 
investment advisory or similar services, and any Secondary Services, at 
least 30 days prior to the implementation of such increase in fees, 
accompanied by a Termination Form, made to the Second Fiduciary.
---------------------------------------------------------------------------

    \4\ Although Advisory Opinion 2002-05A addressed whether PTE 77-
4 would be available for purchases or sales of ETF shares on an 
exchange if brokerage commissions were paid to an unaffiliated 
broker-dealer, the Applicants requested that the transaction 
described in that Advisory Opinion be included in the relief 
provided by this proposed exemption so that the Investment Adviser 
has the ability to comply with the requirements of this proposal 
rather than PTE 77-4.
---------------------------------------------------------------------------

    12. The Applicants represent that investment in Funds is customary 
for Plan investors and is becoming increasingly more popular. If Plans 
(particularly those invested in Pooled Funds) cannot invest in Funds, 
they cannot take advantage of a beneficial and liquid investment 
opportunity. The Applicants also represent that the more practical 
rules on negative consent that were adopted by the Department in PTE 
86-128 and later exemptions are not included in PTE 77-4 or similar 
exemptions, making the latter set of exemptions less helpful.
    13. The Applicants represent that among the reasons why the 
Investment Adviser may determine that investment in Funds is 
appropriate to achieve the investment objectives of an Account is the 
management of liquidity. Many Accounts require liquidity, especially in 
the defined contribution plan context, and pooled funds have a 
particular need for liquidity to deal with inflows and outflows of 
assets. Fully investing a pooled fund in securities, only to liquidate 
any time a Plan requests a distribution, creates additional costs that 
are not in the best interest of these Accounts. On the other hand, cash 
left idle (or invested in money market instruments, cash funds, or the 
like) fails to replicate the model or index of the Account, creating 
tracking error or benchmark drift. The Applicants represent that 
another reason that Plans may want to invest in Funds is that they also 
provide a beneficial method of equitizing investment assets.
    14. The requested exemption would permit acquisitions, sales and 
exchanges of Fund shares, both in cash or in-kind. The Applicants 
represent that in-kind exchanges are appropriate to advance client 
objectives where, for example, a client is changing managers and wants 
an Account to have a particular exposure (i.e., exposure to a 
particular investment strategy) during the transition period.
    15. The Applicants represent that if the Account specifies in its 
order that it will use in-kind (or a combination of in-kind and cash) 
to acquire the iShares or wants to receive in-kind (or a combination of 
in-kind and cash) for its iShares, there is a natural hedge between the 
in-kind securities and the iShares. The market value of the in-kind 
securities determines the NAV of the iShares. Therefore, as the Account 
waits for Creation or Redemption to be done at the end of the day, at 
NAV, if the market value of the in-kind securities goes up or down, the 
NAV of the iShares will go up or down (as the case may be) in tandem. 
This is different than a Plan's purchase of mutual fund shares, where 
the Plan would have exposure to market moves between the time it places 
an order and the time that the value of any shares (i.e., NAV) 
purchased or redeemed is determined.
    16. The Applicants represent that, although the requested exemption 
will permit the Investment Adviser to consider ETFs and other Funds as 
possible investments, where there are identical investment 
alternatives, it is up to the investment manager to determine which 
approach is best for Plans. In some markets, such as certain emerging 
market equity strategies, other reasonable alternatives may not exist.
    17. The Applicants represent that investment in the Funds would 
only take place when such investment is consistent with the investment 
guidelines of a Separately Managed Account or Pooled Fund, and where 
such investment is appropriate to achieve the investment objectives of 
such account or fund.
    18. ETFs have an imbedded management fee (paid to BGFA), and a 
commission for secondary market purchases may also be paid to 
unaffiliated brokers with respect to investment in an ETF.
    19. The Applicants represent that investment management fees 
related to investment in the Funds would be offset, credited or waived 
at the Account level, as provided for in PTE 77-4 and other similar 
individual exemptions. The Applicants represent that the billing 
systems and processes at BGI have been designed to correctly rebate or 
credit the advisory fees from Funds against the Plan level fees or 
credit the Plan level fees. These processes and systems are part of the 
billing function of BGI, and with respect to PTE 77-4 compliance, have 
been tested over the years to ensure compliance.
    20. The Applicants represent that often, where Plans are invested 
in a pooled vehicle, the rules in PTE 77-4 that relate to investment of 
pooled vehicles in open-end investment companies are expensive to 
administer, impractical, time consuming and burdensome. In particular, 
it is represented that it is difficult for many pooled vehicles to 
comply with written consent requirements similar to those contained in 
PTE 77-4.
    21. The requested exemption would require the Investment Adviser to 
provide certain disclosures to Separately Managed Accounts, and to 
Accounts invested in Pooled Funds, prior to investing in the Funds, but 
would permit ``deemed consent'' or negative consent to occur where the 
Investment Adviser receives no response to such disclosures. In 
addition, the proposed exemption contains disclosure and consent 
procedures which would apply with respect to existing Account investors 
in a pooled fund. The proposed exemption contains annual 
reauthorization requirements, which may be satisfied through the use of 
a Termination Form,

[[Page 51675]]

similar to the requirements contained in other exemptions similar to 
PTE 77-4.
    22. The proposed exemption would allow disclosures to be provided 
in written or in electronic form. A Second Fiduciary may request a non-
electronic copy of any required disclosure. In all instances in which 
the Investment Adviser provides electronic distribution of information 
to Second Fiduciaries who have provided electronic mail addresses, such 
electronic disclosure will be provided in a manner similar to the 
procedures described in 29 CFR section 2520.104b-1(c) to ensure that 
the Investment Adviser's system of providing electronic disclosures 
results in actual receipt by the intended recipient.
    23. The proposed exemption includes a condition which would 
prohibit Separately Managed Accounts that hold assets of a Plan 
sponsored by the Investment Adviser from engaging in the proposed 
transactions. In addition, if a Pooled Fund engaging in the proposed 
transactions holds assets of a Plan or Plans sponsored by the 
Investment Adviser or its affiliate, the total assets of all such Plans 
invested in such Pooled Fund shall not exceed 10% of the total assets 
of such Pooled Fund.
    24. The proposed exemption contains valuation requirements which 
apply to any in-kind exchange between a Plan and a Fund. In general, 
the condition requires that the value of securities received by an 
Account with respect to an in-kind exchange with a Fund will be 
determined based on the same valuation principles which govern 
valuation of the underlying securities held by the Fund, and will use 
the same pricing sources used by the Fund with respect to its assets. 
Each Fund must also value its assets pursuant to procedures established 
by the Fund's Board of Directors or Trustees, as applicable, and as 
required by the 1940 Act.
    25. In summary, the Applicants represent that the criteria of 
section 408(a) of the Act are satisfied for the following reasons: (a) 
The transactions will allow the Plans to enjoy the advantages of 
investment in ETFs, which will provide the Plans with liquid 
investments; (b) Prior to the initial investment of Plan assets in the 
Funds, a second, independent fiduciary of each Plan will receive full 
disclosure regarding the proposed investment and the fees to be 
received by the Investment Adviser, and has the opportunity to approve 
or disapprove the investment; (c) No sales commissions or similar fees 
will be paid by the Accounts to the Investment Adviser in connection 
with such purchase, sale or exchange; (d) No Separately Managed Account 
holding assets of a Plan sponsored by the Investment Adviser will 
engage in the proposed transactions, and if a Pooled Fund engaging in 
the proposed transactions holds assets of a Plan or Plans sponsored by 
the Investment Adviser, the total assets of all such Plans invested in 
such Pooled Fund shall not exceed 10% of the total assets of such 
Pooled Fund; (e) In-kind transactions with an Account will only involve 
securities which are publicly-traded and for which market quotations 
are readily available; (f) The Investment Adviser and its affiliates 
will not receive any fees payable pursuant to Rule 12b-1 under the 1940 
Act in connection with the transactions described herein; (g) The 
Accounts will pay no redemption or similar fees to the Investment 
Adviser in connection with the sales by the Account to Funds of Fund 
shares; (h) There will be no double payment of investment management, 
investment advisory and similar fees to the Investment Adviser by the 
Accounts; and (i) The combined total of all fees received by the 
Investment Adviser for the provision of services to an Account, and in 
connection with the provision of any services to any of the Funds in 
which an Account may invest, will not be in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (This is not a toll-free number.)

BlackRock, Inc. (BlackRock), and Merrill Lynch & Co. (Merrill Lynch) 
(collectively, the Applicants), Located in New York, New York

[Application No. D-11420]

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Employee 
Retirement Income Security Act of 1974 (the Act) and section 4975(c)(2) 
of the Internal Revenue Code of 1986 (the Code) and in accordance with 
the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).
Section I--Transactions
    If the proposed exemption is granted, the restrictions of section 
406 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 
(F) of the Code, shall not apply to the purchase of certain securities 
(the Securities), as defined below in Section III(k), by an Asset 
Manager, as defined below in Section III(f), from any person other than 
a Merrill Lynch/BlackRock Related Entity or Merrill Lynch/BlackRock 
Related Entities, as defined below in Section III(c), during the 
existence of an underwriting or selling syndicate with respect to such 
Securities, where a Merrill Lynch/BlackRock Related Broker-Dealer, as 
defined below in Section III(b), is a manager or member of such 
syndicate and the Asset Manager purchases such Securities, as a 
fiduciary:
    (a) On behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined below in Section III(h); or
    (b) on behalf of Client Plans, and/or In-House Plans, as defined 
below in Section III(o), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined below in Section III(i); 
provided that the conditions as set forth below in Section II, are 
satisfied (An affiliated underwriter transaction (AUT)).\5\
---------------------------------------------------------------------------

    \5\ For purposes of this proposed exemption an In-House Plan may 
engage in AUTs only through investment in a Pooled Fund.
---------------------------------------------------------------------------

Section II--Conditions
    The proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following requirements:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or

[[Page 51676]]

    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible 
Rule 144A Offering of the Securities is of equity securities, the 
offering syndicate shall obtain a legal opinion regarding the adequacy 
of the disclosure in the offering memorandum;
    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased pursuant to this 
proposed exemption must have been in continuous operation for not less 
than three years, including the operation of any predecessors, unless 
the Securities to be purchased--
    (1) Are non-convertible debt securities rated in one of the four 
highest rating categories by Standard & Poor's Rating Services, Moody's 
Investors Service, Inc., Fitch Ratings, Inc., Dominion Bond Rating 
Service Limited, Dominion Bond Rating Service, Inc., or any successors 
thereto (collectively, the Rating Organizations); provided that none of 
the Rating Organizations rates such securities in a category lower than 
the fourth highest rating category; or
    (2) are debt securities issued or fully guaranteed by the United 
States or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States; or
    (3) are debt securities which are fully guaranteed by a person (the 
Guarantor) that has been in continuous operation for not less than 
three years, including the operation of any predecessors, provided that 
such Guarantor has issued other securities registered under the 1933 
Act; or if such Guarantor has issued other securities which are exempt 
from such registration requirement, such Guarantor has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, and such Guarantor:
    (a) Is a bank, or
    (b) Is an issuer of securities which are exempt from such 
registration requirement, pursuant to a Federal statute other than the 
1933 Act; or
    (c) Is an issuer of securities that are the subject of a 
distribution and are of a class which is required to be registered 
under section 12 of the Securities Exchange Act of 1934 (the 1934 Act) 
(15 U.S.C. 781), and are issued by an issuer that has been subject to 
the reporting requirements of section 13 of the 1934 Act (15 U.S.C. 
78m) for a period of at least ninety (90) days immediately preceding 
the sale of such securities and that has filed all reports required to 
be filed hereunder with the SEC during the preceding twelve (12) 
months.
    (c) The aggregate amount of Securities of an issue purchased, 
pursuant to this proposed exemption, by the Asset Manager with: (i) The 
assets of all Client Plans; and (ii) the assets, calculated on a pro-
rata basis, of all Client Plans and In-House Plans investing in Pooled 
Funds managed by the Asset Manager; and (iii) the assets of plans to 
which the Asset Man