Smith Barney, Inc. (SBI), Located in New York, NY

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 94-4S; Application Nos. D-9337 and D-

9415]

Smith Barney, Inc. (SBI), Located in New York, NY

AGENCY: Pension and Welfare Benefits Administration.

ACTION: Grant of individual exemption to modify and replace prohibited

transaction exemption (PTE) 92-77 involving Shearson Lehman Brothers,

Inc. (Shearson Lehman).

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SUMMARY: This document contains an individual exemption which

supersedes PTE 92-77 (57 FR 45833, October 5, 1992).1 This

exemption permits the replacement of Shearson Lehman with an entity

known as ``Smith Barney Inc.''2 It also allows SBI to adopt a

daily-traded collective investment fund (the GIC Fund) for Plans

investing in the Consulting Group Capital Markets Funds (the Trust).

The exemption provides conditional relief that is identical to that

provided by PTE 92-77 and it will affect participants and beneficiaries

of, and fiduciaries with respect to, Plans participating in the Trust.

\1\PTE 92-77 provides exemptive relief from 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, with respect to the purchase or redemption of shares in

the Trust for TRAK Investments (which has been redesignated as the

``Consulting Group Capital Markets Funds'' and is referred to herein

as the Trust) by Plans investing therein. In addition, PTE 92-77

provides exemptive relief from the restrictions of section 406

(b)(1) and (b)(2) of the Act and the sanctions resulting from the

application of section 4975 of the Code, by reason of section

4975(c)(1)(E) of the Code, with respect to the provision, by the

Consulting Group of Shearson Lehman, of investment advisory services

to an Independent Plan Fiduciary of a Plan participating in the TRAK

Personalized Investment Advisory Service (the TRAK Program) which

may result in such fiduciary's selection of a Portfolio in the TRAK

Program for the investment of Plan assets.

\2\Effective June 1, 1994, Smith Barney Shearson, Inc. (SBS) was

renamed ``Smith Barney Inc.'' Hereinafter, SBS is referred to in

this grant notice as either ``Smith Barney Inc.'' or ``SBI.''

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EFFECTIVE DATE: This exemption is effective July 31, 1993 for

transactions that are covered by PTE 92-77. With respect to

transactions involving the GIC Fund, the exemption is effective March

29, 1994.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption

Determinations, Pension and Welfare Benefits Administration, U.S.

Department of Labor, telephone (202) 219-8881. (This is not a toll-free

number.)

SUPPLEMENTARY INFORMATION: On March 29, 1994, the Department of Labor

(the Department) published a notice of proposed exemption (the Notice)

in the Federal Register (59 FR 14680) that would replace PTE 92-77. PTE

92-77 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. The

proposed exemption was requested in an application filed by SBI

pursuant to section 408(a) of the Act and section 4975(c)(2) of the

Code, and in accordance with the procedures (the Procedures) set forth

in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Accordingly, this replacement exemption is

being issued solely by the Department.

The Notice gave interested persons an opportunity to comment on the

proposed exemption and to request a public hearing. The only written

comments submitted to the Department during the comment period were

made by SBI. These comments expressed SBI's substantive concerns about

the Notice and offered suggestions for clarifying certain language of

the Notice. Discussed below are SBI's comments and the Department's

responses thereto. Also discussed is a comment made by the Department.

SBI's Comments

SBI notes that there is an ambiguity regarding the effective date

of the GIC Fund. SBI represents that the Notice provides in the last

paragraph under the heading ``Supplementary Information,'' that with

respect to transactions involving the GIC Fund, the exemption ``would

become effective as of the date of the grant of the notice of

pendency.'' However, under the captions Effective Dates and Dates, SBI

explains that the Notice states that the exemption will be effective

``upon its grant,'' or ``as of the date the grant notice is

published.'' Because it was the intention of the parties that the

effective date for transactions involving the GIC Fund would be March

29, 1994, the date of publication of the Notice in the Federal

Register, SBI requests that the Department make the exemption

retroactive to this date for the GIC Fund.

The Department has considered SBI's comment and has made the

requested modification.

SBI wishes to modify the exemption in order that it may offer the

GIC Fund to both fiduciary-directed Plans as well as Plans providing

for participant-directed investments (the Section 404(c) Plans). The

Department believes this comment has merit and that it would be

potentially beneficial to participants and beneficiaries since it

provides different types of Plans participating in the TRAK Program

with the opportunity to invest in the GIC Fund.

SBI explains that in the preamble to the Notice there is a

statement to the effect that it will ``describe the GIC Fund in a

prospectus (the Prospectus) and promotional materials that will be

furnished to Section 404(c) Plan participants.'' SBI represents that

interests in the GIC Fund are not subject to the registration and

Prospectus delivery requirements of the Securities Act of 1933. Also,

SBI points out that the conditions of PTE 92-77 require it to deliver

copies of the Trust Prospectus only to the Plan administrator and not

to the individual participants. Because it has no practical means of

delivering Prospectuses or other disclosures to participants, SBI

indicates that the responsibility for providing these materials to

participants rests with the Plan administrator. In this regard, SBI

represents that the disclosure information it will make available to

all Plans proposing to invest in the GIC Fund will include copies of

the Trust Prospectus and a separate description of the GIC Fund's

investment objectives, policies and processes. SBI explains that its

description of the GIC Fund will be designed to provide a participant

with sufficient information in order that the participant can make an

informed investment decision.

The Department concurs with these comments.

In addition to principal comments discussed above, SBI has made

certain technical clarifications and updates to the Notice in the

following areas:

(1) General.

a. Redesignations. SBI explains that effective December 31, 1993,

Primerica Corporation changed its name to ``The Travelers Inc.'' and

that effective May 9, 1994, the ``Trust for TRAK Investments'' was

renamed ``Consulting Group Capital Markets Funds.'' Also effective June

1, 1994, ``Smith Barney Shearson Inc.'' was renamed ``Smith Barney

Inc.''

(2) Supplementary Information.

a. Asset Sale Transaction. SBI explains that the transaction by

which Smith Barney Harris Upham & Company, Inc. (Smith Barney) acquired

Shearson Lehman and its Asset Management Divisions was an asset sale

and not a merger. Accordingly, SBI suggests that the fourth sentence of

the third paragraph under the heading ``Supplementary Information,''

read as follows: ``As a result of the transaction, most of the assets

and business of the Shearson divisions were transferred to Smith

Barney, which was renamed `Smith Barney Shearson Inc.'''

b. Fees Paid to Transfer Agent. SBI represents that in the seventh

paragraph under the heading ``Supplementary Information,'' the Notice

states that The Shareholder Services Group (TSSG), as transfer agent,

will charge a fee of $8.50 to $9.50 per plan for its transfer agency

services. While these are the current expected fee levels, SBI notes

that such fees may increase or decrease in the future. Because TSSG is

no longer an affiliate, SBI requests that the paragraph be amended to

provide that TSSG as transfer agent will receive a reasonable fee for

its services rather than specifying a precise dollar amount.

(3) General Conditions.

a. Written Disclosures. Section II(k)(1)(F) of the General

Conditions of the Notice states that SBI will provide copies of PTE 92-

77 and documents pertaining to the proposed replacement exemption to

each Plan participating in the TRAK Program. SBI wishes to clarify that

the ``documents pertaining to the proposed replacement exemption''

refer to copies of the Notice and, when issued, the final exemption.

The Department concurs with the above supplemental clarifications

to the Notice that have been made by SBI and hereby incorporates these

changes, as well as the substantive changes also described above, by

reference into the Notice and, where applicable, into this final

exemption.

Department's Comment

Section III of the Notice, which is captioned ``Definitions,''

provides several meanings of the term ``Independent Plan Fiduciary'' in

subparagraph (b). For purposes of the exemption, the term ``Independent

Plan Fiduciary'' may include a Plan administrator, a participant in a

Keogh Plan, an individual covered under a self-directed IRA or a

trustee of a Title I Plan that does not permit participant-directed

investments as contemplated under section 404(c) of the Act. However,

due to an oversight, the definition does not extend to a participant in

a Section 404(c) Plan. Because the TRAK Program is being marketed as an

investment alternative to Section 404(c) Plans and the individual

participant of such Plan makes the decision on whether to invest

therein, the Department has amended the definition of the term

``Independent Plan Fiduciary'' by providing a new subparagraph (b)(5)

which includes a Section 404(c) Plan participant.

Accordingly, after consideration of the entire exemption record,

including the written comments, the Department has determined to grant

the replacement exemption as modified herein.

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) In accordance with section 408(a) of the Act and section

4975(c)(2) of the Code, the Department has found that the exemption is

administratively feasible, in the interest of the Plans and their

participants and beneficiaries and protective of the rights of

participants and beneficiaries of the Plans; and

(3) The exemption is 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.

(4) In addition to transactions involving the GIC Fund, the

exemption is applicable to the transactions previously described in PTE

92-77 only if the conditions specified therein are met.

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 cited

above, the Department hereby replaces PTE 92-77 as follows:

Section I. Covered Transactions

(a) The restrictions of section 406(a) of the Act and the sanctions

resulting from the application of section 4975 of the Code, by reason

of section 4975(c)(1) (A) through (D) of the Code, shall not apply to

the purchase or redemption of shares by Plans in the SBI-established

Trust in connection with such Plans' participation in the TRAK

Personalized Investment Advisory Service.

(b) The restrictions of section 406(b) of the Act and the sanctions

resulting from the application of section 4975 of the Code by reason of

section 4975(c)(1) (E) and (F) of the Code, shall not apply to the

provision, by the Consulting Group, of investment advisory services to

an Independent Plan Fiduciary of a participating Plan which may result

in such fiduciary's selection of a Portfolio in the TRAK Program for

the investment of Plan assets.

The exemption is subject to the following conditions that are set

forth 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 SBI 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 fiduciary.

(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 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 that acts for the Trust to exercise investment

discretion over a Portfolio will be independent of SBI and its

affiliates.

(i) Immediately following the acquisition by a Portfolio of any

securities that are issued by SBI and/or its affiliates, the percentage

of that Portfolio's net assets invested in such securities will not

exceed one percent.

(j) The quarterly investment advisory fee that is paid by a Plan to

the Consulting Group for investment advisory services rendered to such

Plan will be offset by such amount as is necessary to assure that the

Consulting Group retains no more than 20 basis points from any

Portfolio (with the exception of the Government Money Investments

Portfolio and the GIC Fund Portfolio for which the Consulting Group and

SBI 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, SBI and its

subsidiaries and the compensation paid to such entities.3

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\3\The fact that certain transactions and fee arrangements are

the subject of an administrative exemption does not relieve the

Independent Plan Fiduciary from the general fiduciary responsibility

provisions of section 404 of the Act. In this regard, the Department

expects the Independent Plan Fiduciary to consider carefully the

totality of fees and expenses to be paid by the Plan including the

fees paid directly to SBI or to other third parties and/or

indirectly through the Trust to SBI.

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(B) Upon written or oral request to SBI, 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.

(D) Upon written request of SBI, a copy of the respective

investment advisory agreement between the Consulting Group and the Sub-

Advisers.

(E) In the case of a Section 404(c) Plan, if required by the

arrangement negotiated between the Consulting Group and the Plan, an

explanation by an SBI 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) Copies of PTE 92-77 and documents pertaining to the replacement

exemption.

(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 SBI that such

fiduciary is (a) independent of SBI 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 SBI that such fiduciary is (a) independent of SBI 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 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 SBI and its affiliates and (b) the average brokerage

commission per share paid by each Portfolio to SBI and its affiliates,

as compared to the average brokerage commission per share paid by the

Trust to brokers other than SBI and its affiliates, both expressed as

cents per share.

(m) SBI 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 SBI 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 SBI shall

be subject to the civil penalty that may be assessed under section

502(i) of the Act, or to the taxes imposed by section 4975 (a) and (b)

of the Code, if the records are not maintained, or are not available

for examination as required by paragraph (n) below.

(n)(1) Except as provided in section (2) of this paragraph and

notwithstanding any provisions of subsections (a) (2) and (b) of

section 504 of the Act, the records referred to in paragraph (m) of

this Section 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 Internal Revenue 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

SBI or commercial or financial information which is privileged or

confidential.

Section III. Definitions

For purposes of this exemption:

(a) An ``affiliate'' of SBI includes--

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with SBI. (For purposes of this subsection, the term ``control'' means

the power to exercise a controlling influence over the management or

policies of a person other than an individual.)

(2) Any officer, director or partner in such person, and

(3) Any corporation or partnership of which such person is an

officer, director or a 5 percent partner or owner.

(b) An ``Independent Plan Fiduciary'' is a Plan fiduciary which is

independent of SBI and its affiliates and is either

(1) A Plan administrator, sponsor, trustee or named fiduciary, as

the recordholder of Trust shares of a Section 404(c) Plan,

(2) A participant in a Keogh Plan,

(3) An individual covered under a self-directed IRA 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 Section 404(c) Plan.

Section IV. Effective Dates

This exemption will be effective as of July 31, 1993, except for

transactions involving the GIC Fund. The exemption will be effective

March 29, 1994 with respect to the inclusion of the GIC Fund in the

TRAK Program.

The availability of this exemption is subject to the express

condition that the material facts and representations contained in the

applications 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, refer to the

proposed exemption and grant notice which are cited above.

Signed at Washington, DC, this 16th day of June 1994.

Ivan L. Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-15006 Filed 6-20-94; 8:45 am]

BILLING CODE 4510-29-P