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

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 99-15; Exemption Application No. D-

10574]

Grant of Individual Exemption To Amend Prohibited Transaction

Exemption (PTE) 94-50 Involving Salomon Smith Barney Inc. (Salomon

Smith Barney) Located in New York, NY

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

Labor.

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

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SUMMARY: This document contains a final exemption before the Department

of Labor (the Department) which would amend PTE 94-50 (59 FR 32024,

June 21, 1994), an exemption granted to Smith Barney, Inc. (Smith

Barney), the predecessor of Salomon Smith Barney. PTE 94-50 relates to

the operation of the TRAK Personalized Investment Advisory Service

product (the TRAK Program) and the Trust for TRAK Investments

(subsequently renamed the Trust for Consulting Group Capital Markets

Funds) (the Trust). These transactions are described in a notice of

pendency that was published in the Federal Register on November 9, 1998

at 63 FR 60391.

EFFECTIVE DATE: This exemption is effective as of July 31, 1993 with

respect to the transactions described in Section I.A. and B.(1). of

this grant notice. It is also effective as of March 29, 1994 for

transactions involving a daily-traded collective investment fund (the

GIC Fund) that was added to the TRAK Program pursuant to PTE 94-50.

With respect to Section I.B(2) and Section II(f)(1)-(4) of the General

Conditions of this grant notice, which set forth the amendments to PTE

94-50, this exemption is effective as of November 9, 1998.

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

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

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

number.)

SUPPLEMENTARY INFORMATION: On November 9, 1998, the Department

published, at 63 FR 60391, a notice of proposed exemption in the

Federal Register that would amend PTE 94-50. PTE 94-50 provides an

exemption from certain prohibited transaction restrictions of section

406 of the Employee Retirement Income Security Act of 1974 (the Act)

and from the sanctions resulting from the application of section 4975

of the Internal Revenue Code of 1986 (the Code), as amended, by reason

of section 4975(c)(1) of the Code. Specifically, PTE 94-50 provides

exemptive relief from the restrictions of section 406(a) of the Act and

the sanctions resulting from the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A) through (D) of the Code, for

the purchase or redemption of shares in the Trust by an employee

benefit plan, an individual retirement account, or a retirement plan

for a self-employed individual (collectively, the Plans). PTE 94-50

also provides exemptive relief from the restrictions of section 406(b)

of the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1)(E) and (F) of the

Code, with respect to the provision, by the Consulting Group of Smith

Barney (the Consulting Group), of investment advisory services to

independent fiduciaries of participating Plans (the Independent Plan

Fiduciaries) that might result in such fiduciary's selection of an

investment portfolio under the TRAK Program for the investment of Plan

assets. 1

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\1\ On October 5, 1992, the Department granted PTE 92-77 at 55

FR 45833. PTE 92-77 permitted Shearson Lehman Brothers, Inc.

(Shearson Lehman) to make the TRAK Program available to Plans that

acquired shares in the Trust. In this regard, PTE 92-77 permitted

Plans to purchase or redeem shares in the Trust and allowed the

Consulting Group to provide investment advisory services to an

Independent Fiduciary of a Plan which might result in such

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

investment of Plan assets.

Subsequent to the granting of PTE 92-77, on July 31, 1993, Smith

Barney acquired certain assets of Shearson Lehman associated with

its retail business, including the TRAK Program, and applied for and

received a new exemption (PTE 94-50) for the ongoing operation of

the TRAK Program. Essentially, PTE 94-50 amended and replaced PTE

92-77. However, because of certain material factual changes to the

representations supporting PTE 92-77, the Department determined that

the exemption was no longer effective for use by Smith Barney and

its subsidiaries as of the date of the asset sale.

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Besides the transactions described above, PTE 94-50 permitted Smith

Barney to add a daily-traded collective investment fund (i.e., the GIC

Fund) to the existing Fund Portfolios and to describe the various

entities operating the GIC Fund. Further, PTE 94-50 replaced references

to Shearson Lehman with references to Smith Barney. PTE 94-50 is

effective as of July 31, 1993 for the transactions described in PTE 92-

77 and effective as of March 29, 1994 with respect to transactions

involving the GIC Fund.

Salomon Smith Barney has informed the Department of certain changes

to the facts underlying PTE 94-50. These modifications include (1)

Corporate mergers that have changed the names of the parties described

in PTE 94-50 and would permit broader distribution of TRAK-related

products, (2) the implementation of a recordkeeping reimbursement

offset system (the Recordkeeping Reimbursement Offset Procedure) under

the TRAK Program, and (3) the institution of an automated reallocation

option (the Automatic Reallocation Option) under the TRAK Program for

which Salomon Smith Barney has requested administrative exemptive

relief from the Department. The proposed exemption was requested in an

application filed on behalf of Salomon Smith Barney pursuant to section

408(a) of the Act and section 4975(c)(2) of the Code, and in accordance

with the procedures (the Procedures) set forth in 29 CFR Part 2570,

Subpart B (55 FR 32836, August 10, 1990). Effective December 31, 1978,

section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October

17, 1978) transferred the authority of the Secretary of the Treasury to

issue exemptions of the type requested to the Secretary of Labor.

Accordingly, this exemption is being issued solely by the Department.

The proposed exemption gave interested persons an opportunity to

comment on the notice of pendency and to request a public hearing.

During the comment period, the Department received three written

comments and no requests for a hearing in response to the notice. Two

comments were submitted by Plan participants investing in the TRAK

Program. The third comment, which is intended to clarify and modify

[[Page 16487]]

the proposed exemption, was submitted by Salomon Smith Barney.

Following is a discussion of the comments received, the responses

provided by Salomon Smith Barney, and the Department's determinations

regarding the comments.

Participant Comments

The first commenter objects to the proposed exemption because he is

under the impression that the new services that will be offered to TRAK

Program investors by Salomon Smith Barney will result in increased fees

paid to consultants and investment advisers by the Funds. The commenter

also does not believe that there will be a corresponding increase in

the growth of the Funds.

Salomon Smith Barney represents that although it is not clear which

provisions in the proposed exemption have elicted the comment, it

points out that the comment relates more or less to the underlying Fund

portfolios rather than to the TRAK Program.

As to the commenter's first area of concern, Salomon Smith Barney

explains that the proposed Automatic Reallocation Option is a service

that is to be provided at no additional cost to the investor and it

does not affect the calculation of the investment advisory fee. In

addition, Salomon Smith Barney represents that it does not have a basis

to respond to the inclusion of ``consultants'' in this comment. With

respect to the commenter's concern about growth prospects, Salomon

Smith Barney states that no investment vehicle can assure investors

future performance.

The second commenter states that while he has no objection to

Salomon Smith Barney's implementation of the Automatic Reallocation

Option, he would like to see the requirement for clear explanations of

the choices and the implications of such choices. The commenter also

suggests that Salomon Smith Barney provide a clear path for revocation

of the Automatic Reallocation Option, whereby a Plan investor's choice

would have to be reaffirmed periodically.

In response to this comment, Salomon Smith Barney states that the

text of the announcement referred to in the preamble (the Preamble) at

60394 provides participants with the same information that the

commenter requests. However, as an alternative to the commenter's

suggestion of a reaffirmation mechanism, Salomon Smith Barney

represents that it will include a footnote in the ``Participant

Quarterly Review'' indicating that the participant is currently using

the Automatic Reallocation Option and stating that such participant can

cancel this service at any time. Salomon Smith Barney proposes to place

the footnote after the legend quoted in Footnote 5 of the Preamble. The

additional language would read as follows:

You have elected to have your TRAK Portfolio automatically

reallocated at such time as the Consulting Group recommends a change

to the Allocation Model you are following. If, at any time, you

choose to discontinue this service, please contact your Financial

Consultant for instructions.

Salomon Smith Barney believes the participant will then be consistently

reminded of his or her option to discontinue the Automatic Reallocation

Option.

Salomon Smith Barney's Comments

1. Corporate Mergers

Salomon Smith Barney wishes to clarify that on page 60392 of the

Preamble, in the first sentence of the paragraph captioned ``Corporate

Mergers,'' the phrase ``Salomon Inc., the ultimate parent of'' should

be inserted after the phrase ``acquired all the shares of.'' Also, in

this section, Salomon Smith Barney wishes to modify the first sentence

of the third paragraph to clarify that one of the purposes of the

merger, rather than the ``sole'' purpose of the merger, was to create

additional distribution channels for the TRAK Program.

In response to this comment, the Department concurs with the

requested modifications and has made the suggested changes.

2. Recordkeeping Reimbursement Offset Procedure

Salomon Smith Barney has informed the Department that although it

has not yet implemented the Recordkeeping Reimbursement Offset

Procedure in a manner that will reduce the net outside fee (the Net

Outside Fee), at the present time, it has in place a recordkeeping

reimbursement program that reduces recordkeeping expenses only, at an

annual rate of $8.50 per participant position. Salomon Smith Barney

states that this annualized rate has been approved by the Funds' Board

of Trustees and that, of the $8.50 amount, $0.50 per participant

position represents a sub-transfer agency fee for the costs associated

with the application of the reimbursement process (the Processing Fee).

Currently, Salomon Smith Barney states that its affiliate, Smith Barney

Corporate Trust Company, is retaining this Processing Fee.

Salomon Smith Barney has provided an example showing the manner in

which the recordkeeping reimbursement amount is determined by the Funds

at the $8.50 level using some of the numbers set forth in the example

given in the Preamble on pages 60392 and 60393. The example assumes

that all positions are eligible for reimbursement because positions in

the Government Money Investments Portfolio and the Stable Value (GIC)

Fund Portfolio are not eligible for recordkeeping reimbursement.

Assume that Plan A has $1 million in assets invested in the TRAK

Program and 100 participants. Assume further that Plan A pays its

recordkeeper $20 per participant per year in Annual Fees totaling

$2,000 per year or $500 per quarter and $12 per participant per year

in Other Fees, totaling $1,200 per year or $300 per quarter. Assume

also that the Plan pays the recordkeeper an annual Processing Fee of

$150.

At the end of each calendar quarter, Plan A's recordkeeper would

determine the actual number of Fund positions held by the Plan A

participants and calculate the resulting reimbursement amount that

would be paid by the Funds. If Plan A had 300 participant positions

at the end of the quarter, the Plan's total recordkeeping

reimbursement amount to be paid by the Funds would be300 x $2 (the

annual amount of $8 divided by 4) or $600.

The Processing Fee paid by the Plan to the recordkeeper for the

quarter would be 300 x $0.125 (the annual amount of $0.50 divided

by 4) or $37.50. This Processing Fee would, in turn, also be

credited back to the Plan by the Funds.

Application of Reimburesment to Recordkeeping Fees

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Quarterly Portion of Annual Fees........................... $500.00

Quarterly Portion of Other Fees \2\........................ 300.00

Processing Fee............................................. 37.50

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Total Quarterly Recordkeeping Fees......................... $837.50

Credit for Reimbursement................................... ($600.00)

Credit for Processing Fee.................................. ($ 37.50)

------------

Total Reimbursement.................................... ($637.50)

Net Amount of Recordkeeping Fees Payable by the Plan....... $200.00

Net Amount of Recordkeeping Fees Payable by the Funds...... 637.50

------------

Total Quarterly Recordkeeping Fees..................... $837.50

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\2\ Assumes ``Other Fees'' are paid by the Plan during the quarter.

Since the recordkeeping reimbursement program currently in place

applies only to the payment of expenses related to recordkeeping,

there would never be an ``excess reimbursement'' according to

Salomon Smith Barney. Therefore, the Total Reimbursement amount

would reflect the lesser of the amount calculated as in the example

above, or the actual costs billed. If

[[Page 16488]]

the Total Reimbursement calculation had exceeded the Total Quarterly

Recordkeeping Fees, Salomon Smith Barney states that the maximum

reimbursement amount would be limited to the Total Quarterly

Recordkeeping Fees.

On page 60392 of the Preamble, the second paragraph of the section

describing the Recordkeeping Reimbursement Offset Procedure states that

in May 1998, the Board of Trustees of the Funds approved a

recordkeeping reimbursement amount of $12.50 for each investment

position held by a participant. Salomon Smith Barney notes that the

recordkeeping reimbursement amount may be changed by the Board of

Trustees of the Funds from time to time. Therefore, it requests that

the description of the TRAK Program define the reimbursement amount as

``such annual dollar amount per eligible position as shall be set by

the Board of Trustees of the Funds from time to time.'' Salomon Smith

Barney has also informed the Department that, of the $12.50 annual

reimbursement amount approved by the Board of Trustees of the Funds,

$0.50 is being retained by Smith Barney Corporate Trust Company as a

Processing Fee.

The Department does not object to making the foregoing

clarifications to the description of the Recordkeeping Reimbursement

Offset Procedure in the Preamble. However, because Smith Barney

Corporate Trust Company is retaining $0.50 per participant position as

a Processing Fee, the Department requested that Salomon Smith Barney

revise the calculations in the example appearing on pages 60392 and

60393 of the Preamble. In addition to these changes, Salomon Smith

Barney suggested that the following disclaimer language preface the

example in order to avoid investor confusion:

Salomon Smith Barney has provided the following numbers solely

for ease of calculation and not as typical or representative of the

operation of the TRAK product in any particular client circumstance.

Moreover, Salomon Smith Barney notes that because a Plan

participating in the TRAK Program may be required to pay a recordkeeper

``Other Fees'' in addition to annual recordkeeping fees, both of which

may be billed on a quarterly basis, it wishes to clarify that ``Other

Fees'' may arise only at certain times of the year and that it does not

wish to imply by the example that ``Other Fees'' are regularly billed

quarterly in all instances.

In light of these changes, the revised example is set forth as

follows:

Salomon Smith Barney has provided the following numbers solely

for ease of calculation and not as typical or representative of the

operation of the TRAK product in any particular client circumstance.

Therefore, the Recordkeeping Reimbursement Offset Procedure would

work as follows:

Assume that Plan A has $1 million in assets invested in the TRAK

Program and 100 participants. Assume further that Plan A pays its

recordkeeper $20 per participant per year in Annual Fees totaling

$2,000 per year or $500 per quarter and $12 per participant per year

in Other Fees, totaling $1,200 per year or $300 per quarter. Assume

also that the Plan pays the recordkeeper an annual Processing Fee of

$150.

At the end of each calendar quarter, Plan A's recordkeeper would

determine the actual number of Fund positions held by the Plan A

participants and calculate the resulting reimbursement amount. If

Plan A had 300 participant positions at the end of the quarter, the

Plan's total recordkeeping reimbursement amount would be 300 x $3

(the annual amount of $12 divided by 4) or $900. In addition, the

Processing Fee paid to the recordkeeper for the quarter would be 300

x $0.125 (the annual amount of $0.50 divided by 4) or $37.50.

At the end of each calendar quarter, Plan A's recordkeeper would

determine the actual number of Fund positions held by the Plan A

participants and calculate the resulting reimbursement amounts to be

paid by the Funds. If Plan A had 300 participant positions at the

end of the quarter, the Plan's total recordkeeping reimbursement

amount would be 300 x $3 (the annual amount of $12 divided by 4)

or $900. To this amount would be added the $37.50 Processing Fee

paid to the recordkeeper during the quarter. Such amounts would be

credited as follows:

Application of Reimbursement to Recordkeeping Fees

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Quarterly Portion of Annual Fees \3\....................... $500.00

Quarterly Portion of Other Fees............................ 300.00

Processing Fee............................................. 37.50

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Total Quarterly Recordkeeping Fees......................... $837.50

Credit for Reimbursement................................... ($900.00)

Credit for Processing Fee.................................. (37.50)

------------

Total Reimbursement.................................... ($937.50)

Excess Reimbursement....................................... ($100.00)

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\3\ Assumes ``Other Fees'' are paid by the Plan during the quarter.

Because the Total Reimbursement amount exceeds the Total

Quarterly Recordkeeping Fees, the Plan does not owe any

recordkeeping fees for that period. Therefore, the recordkeeper

would not bill the Plan. Instead, the Funds would pay the

recordkeeper the $837.50 amount due.

Application of Excess Reimbursement to the Net Outside Fee

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Quarterly Net Outside Fee.................................. $2,125.00

Excess Reimbursement....................................... (100.00)

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Net Outside Fee Paid by the Plan........................... $2,025.00

Net Outside Fee Paid by the Funds.......................... 100.00

------------

Total Quarterly Net Outside Fee........................ $2,125.00

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In the program as proposed, the Funds have agreed that any

Excess Reimbursement amount remaining after the payment of the Total

Quarterly Recordkeeping Fees would be paid by the Funds to reduce

the Plan's investment advisory fee obligations. Therefore, the $100

Excess Reimbursement amount would be applied against the Plan's

Quarterly Net Outside Fee. Under such circumstances, the

recordkeeper would advise the Consulting Group that it is entitled

to bill the Plan for the $2,025.00 balance of the Consulting Group's

Net Outside Fee. In turn, the Funds would pay the $100 amount

attributable to the Excess Reimbursement to the Consulting

Group.4

\4\ It should be noted that the existence or the amount of the

excess will not alter the amount of the recordkeeping or advisory

fees. Instead, the reimbursement calculations will determine the

proportion of payment by the Funds of the Plan's fee obligations.

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Also, on page 60392 of the Preamble, in the second paragraph of the

section describing the Recordkeeping Reimbursement Offset Procedure, it

states that a participant holding positions in three different Funds

would be eligible to receive a total annual reimbursement of $37.50. In

light of the change to the allocation of the $12.50 reimbursement

amount (i.e., $12.00 per participant position and $0.50 payable to

Smith Barney Corporate Trust Company as a Processing Fee), Salomon

Smith Barney wishes to clarify that the participant would receive a

``total annual offset of $36.00'' rather than a ``total annual

reimbursement of $37.50.''

Finally, on page 60392 of the Preamble, in the last sentence of the

second paragraph describing the Recordkeeping Reimbursement Offset

Procedure, it states that an affected Plan will be required to pay only

the balance of the [Net Outside] fee, which is generally charged on a

quarterly basis, after the excess reimbursement amount has been

deducted. Salomon Smith Barney wishes to point out that because some

recordkeepers choose to bill the initial quarterly installment of the

recordkeeping fee in full and then apply the recordkeeping

reimbursement amount for each quarter to the next

[[Page 16489]]

quarter's fees, it suggests that the Department delete the clause

stating ``and the timing of the offset of the excess reimbursement

amount against the fees,'' appearing on page 60393 of the Preamble in

the second sentence of the first full paragraph following the example.

The Department concurs with the modifications to the Preamble.

3. Footnote 3

On page 60392 of the Preamble, Footnote 3 states that Salomon Smith

Barney is offsetting, quarterly, against the Outside Fee, such amount

as is necessary to assure that the Consulting Group retains not more

than 20 basis points (as an Inside Fee) from any Portfolio on

investment assets attributable to any Plan. For purposes of

clarification, Salomon Smith Barney requests that the Department add

the following parenthetical exception at the end of the footnote after

the word ``Plan'':

(except the Government Money Investments Portfolio and the Stable

Value (GIC) Fund Portfolio, as to which no investment management fee

is retained).

In response, the Department concurs with this clarification.

On page 60393 of the Preamble, the second sentence of the first

paragraph following the example states that 23 recordkeepers currently

provide services to TRAK Program investors. Salomon Smith Barney

explains that since a Plan designates its own recordkeeper, the number

``23'' is subject to change. Therefore, Salomon Smith Barney suggests

the deletion of this number and the Department concurs with this

clarification.

4. Investor Contact/Superfluous Language

On page 60393 of the Preamble, Footnote 5 distinguishes the

Automatic Reallocation Option from rebalancing of a participant's

account and it instructs a TRAK Program participant to contact his or

her Financial Consultant should a change in an investment allocation be

warranted. Footnote 5 also states that a Financial Consultant is

expected to initiate contact with Plan participants at least annually

to encourage a comparison of the holdings in the Plan participant's

portfolio against the Consulting Group's recommendation. Salomon Smith

Barney wishes to inform the Department that in the case of retirement

plans covering multiple participants, this contact typically may take

the form of regular written communications between the Financial

Consultant and the Plan investor.

Moreover, the Department has stricken the last two sentences of

Footnote 5, which due to a printing error, contain superfluous language

also appearing on page 60393 of the Preamble, in the second and third

sentences of the first paragraph under the description of the Automatic

Reallocation Option.

5. Footnote 6

On page 60394 of the Preamble, Footnote 6 states, in pertinent

part, that there are 12 standard asset allocation models (the

Allocation Models). Salomon Smith Barney explains that because it is

constantly in the process of refining the basis for its asset

allocation advice, the number of standard Allocation Models is expected

to change as a result of such product modifications. To avoid an

ongoing obligation to alter this number, Salomon Smith Barney suggests

that the reference to the number ``12'' be deleted. Therefore, the

Department has modified the Preamble, accordingly.

6. Condition (f)

On page 60395 of the Preamble and page 60396 of the operative

language of the proposed exemption, Section II(f)(3) of the General

Conditions contains a notice provision that requires an Independent

Plan Fiduciary to give Salomon Smith Barney at least 30 calendar days

prior written notice of its intention to ``opt out'' of a new asset

allocation model. Salomon Smith Barney wishes to clarify that an

Independent Plan Fiduciary has a period of at least 30 calendar days

during which to provide Salomon Smith Barney with written notice.

Therefore, Salomon Smith Barney proposes that the notice period be

described as ``at any time within the period of 30 calendar days''

prior to the Effective Date.

In response to this comment, the Department has made the change

suggested by Salomon Smith Barney.

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

On pages 60394 and 60395 of the Preamble, paragraph (g) states that

if the Independent Plan Fiduciary ``opts out,'' his or her Plan account

will not be changed on the Effective Date. Paragraph (g) also states

that, under such circumstances, the Allocation Model will remain at its

current level or at such other level as the Independent Plan Fiduciary

designates. However, the Automatic Reallocation Option will remain in

effect for future changes in such participant's Allocation Model.

Salomon Smith Barney explains that once a participant has opted out

of the Automatic Reallocation Option, the participant's account is left

at its current ``non-conforming'' allocation levels and it no longer

resembles a Consulting Group Allocation Model. Because the Automatic

Reallocation Option, in effect, terminates upon a participant's

``opting out,'' Salomon Smith Barney requests the deletion of the last

sentence of paragraph (g).

In response to this comment, the Department has made the requested

deletion to paragraph (g).

8. General Information

On page 60395 of the proposed exemption, in the section captioned

``General Information,'' paragraph (2) states that the proposed

exemption, if granted, will not extend to transactions prohibited under

section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code. The

Department wishes to point out that the exemption will extend to

transactions that are prohibited under section 406(b) of the Act and

section 4975(c)(1)(E) and (F) of the Code and it has modified the final

exemption, accordingly.

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

Salomon Smith Barney requests that the exemption cover transactions

in the TRAK Program that are entered into not only by qualified plans

that meet the requirements of section 401(k) of the Code, but also by

any individual account pension plan that may be subject to Title I of

the Act and established under section 403(b) of the Code (the Section

403(b) Plan). To the extent that participants in Section 403(b) Plans

invest their contributions in shares of the Funds, Salomon Smith Barney

and its affiliates would like to make the TRAK Program available to

them.

The Department concurs with this comment and, on page 60396 of the

proposed exemption, it has revised Section I.A. of the operative

language by deleting the word ``or'' preceding the phrase ``a

retirement plan for self-employed individuals (the Keogh Plan)'' and

adding the phrase ``or an individual account pension plan that is

subject to the provisions of Title I of the Act and established under

section 403(b) of the Code (the Section 403(b) Plan).'' In addition,

the Department has revised Footnote 11 of the proposed exemption to

include a reference to the term ``Section 403(b) Plan'' after the term

``Keogh Plan.'' Further, on page 60398 of the proposed exemption, the

[[Page 16490]]

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

(3) An individual covered under (i) a self-directed IRA or (ii)

a Section 403(b) Plan, which invests in Trust shares.

For further information regarding the comments or other matters

discussed herein, interested persons are encouraged to obtain copies of

the exemption application file (Exemption Application No. D-10574) the

Department is maintaining in this case. The complete application file,

as well as all supplemental submissions received by the Department are

made available for public inspection in the Public Documents Room of

the Pension and Welfare Benefits Administration, Room N-5638, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210.

Accordingly, after giving full consideration to the entire record,

including the written comments received, the Department has decided to

grant the exemption subject to the modifications and clarifications

described above.

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and section 4975(c)(2) of the Code does

not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions of the Act and the Code, including

any prohibited transaction provisions to which the exemption does not

apply and the general fiduciary responsibility provisions of section

404 of the Act, which require, among other things, a fiduciary to

discharge his or her duties respecting the plan solely in the interest

of the participants and beneficiaries of the plan and in a prudent

fashion in accordance with section 404(a)(1)(B) of the Act; nor does it

affect the requirements of section 401(a) of the Code that the plan

operate for the exclusive benefit of the employees of the employer

maintaining the plan and their beneficiaries;

(2) The exemption will extend to transactions prohibited under

section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;

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

4975(c)(2) of the Code, and the Procedures cited above, and based upon

the entire record, the Department finds that the exemption is

administratively feasible, in the interest of the plan and of its

participants and beneficiaries and protective of the rights of

participants and beneficiaries of the plan;

(4) The exemption will be supplemental to, and not in derogation

of, any other provisions of the Act and the Code, including statutory

or administrative exemptions. Furthermore, the fact that a transaction

is subject to an administrative or statutory exemption is not

dispositive of whether the transaction is in fact a prohibited

transaction; and

(5) This is subject to the express condition that the Summary of

Facts and Representations set forth in the notice of proposed exemption

relating to PTE 92-77, as amended by PTE 94-50 and this notice,

accurately describe, where relevant, the material terms of the

transactions to be consummated pursuant to this exemption.

Exemption

Under the authority of section 408(a) of the Act and section

4975(c)(2) of the Code and in accordance with the Procedures set forth

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

Section I. Covered Transactions

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

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

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

the purchase or redemption of shares by an employee benefit plan, an

individual retirement account (the IRA), a retirement plan for self-

employed individuals (the Keogh Plan), or an individual account pension

plan that is subject to the provisions of Title I of the Act and

established under section 403(b) of the Code (the Section 403(b) Plan)

\5\ in the Trust for Consulting Group Capital Market Funds (the Trust),

established by Salomon Smith Barney, in connection with such Plans'

participation in the TRAK Personalized Investment Advisory Service

product (the TRAK Program).

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\5\ The employee benefit plan, the IRA, the Keogh Plan and the

Section 403(b) Plan are collectively referred to herein as the

Plans.

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

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

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

provision, by the Consulting Group, of (1) investment advisory services

or (2) an automatic reallocation option (the Automatic Reallocation

Option) to an independent fiduciary of a participating Plan (the

Independent Plan Fiduciary), which may result in such fiduciary's

selection of a portfolio (the Portfolio) in the TRAK Program for the

investment of Plan assets.

This exemption is subject to the following conditions that are set

forth below in Section II.

Section II. General Conditions

(a) The participation of Plans in the TRAK Program will be approved

by an Independent Plan Fiduciary. For purposes of this requirement, an

employee, officer or director of Salomon Smith Barney and/or its

affiliates covered by an IRA not subject to Title I of the Act will be

considered an Independent Plan Fiduciary with respect to such IRA.

(b) The total fees paid to the Consulting Group and its affiliates

will constitute no more than reasonable compensation.

(c) No Plan will pay a fee or commission by reason of the

acquisition or redemption of shares in the Trust.

(d) The terms of each purchase or redemption of Trust shares shall

remain at least as favorable to an investing Plan as those obtainable

in an arm's length transaction with an unrelated party.

(e) The Consulting Group will provide written documentation to an

Independent Plan Fiduciary of its recommendations or evaluations based

upon objective criteria.

(f) Any recommendation or evaluation made by the Consulting Group

to an Independent Plan Fiduciary will be implemented only at the

express direction of such Independent Plan Fiduciary, provided,

however, that--

(1) If such Independent Plan Fiduciary shall have elected in

writing (the Election), on a form designated by Salomon Smith Barney

from time to time for such purpose, to participate in the Automatic

Reallocation Option under the TRAK Program, the affected Plan or

participant account will be automatically reallocated whenever the

Consulting Group modifies the particular asset allocation

recommendation which the Independent Plan Fiduciary has chosen. Such

Election shall continue in effect until revoked or terminated by the

Independent Plan Fiduciary in writing.

(2) Except as set forth below in paragraph II(f)(3), at the time of

a change in the Consulting Group's asset allocation recommendation,

each account based upon the asset allocation model (the Allocation

Model) affected by such change would be adjusted on the business day of

the release of the new Allocation Model by the Consulting Group, except

to the extent that market conditions, and order purchase and redemption

procedures may delay such processing through a series of purchase

[[Page 16491]]

and redemption transactions to shift assets among the affected

Portfolios.

(3) If the change in the Consulting Group's asset allocation

recommendation exceeds an increase or decrease of more than 10 percent

in the absolute percentage allocated to any one investment medium

(e.g., a suggested increase in a 15 percent allocation to greater than

25 percent, or a decrease of such 15 percent allocation to less than 5

percent), Salomon Smith Barney will send out a written notice (the

Notice) to all Independent Plan Fiduciaries whose current investment

allocation would be affected, describing the proposed reallocation and

the date on which such allocation is to be instituted (the Effective

Date). If the Independent Plan Fiduciary notifies Salomon Smith Barney,

in writing, at any time within the period of 30 calendar days prior to

the proposed Effective Date that such fiduciary does not wish to follow

such revised asset allocation recommendation, the Allocation Model will

remain at the current level, or at such other level as the Independent

Plan Fiduciary then expressly designates, in writing. If the

Independent Plan Fiduciary does not affirmatively ``opt out'' of the

new Consulting Group recommendation, in writing, prior to the proposed

Effective Date, such new recommendation will be automatically effected

by a dollar-for-dollar liquidation and purchase of the required amounts

in the respective account.

(4) An Independent Plan Fiduciary will receive a trade confirmation

of each reallocation transaction. In this regard, for all Plan

investors other than Section 404(c) Plan accounts (i.e., 401(k) Plan

accounts), Salomon Smith Barney will mail trade confirmations on the

next business day after the reallocation trades are executed. In the

case of Section 404(c) Plan participants, notification will depend upon

the notification provisions agreed to by the Plan recordkeeper.

(g) The Consulting Group will generally give investment advice in

writing to an Independent Plan Fiduciary with respect to all available

Portfolios. However, in the case of a Plan providing for participant-

directed investments (the Section 404(c) Plan), the Consulting Group

will provide investment advice that is limited to the Portfolios made

available under the Plan.

(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to

exercise investment discretion over a Portfolio will be independent of

Salomon Smith Barney and its affiliates.

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

securities that are issued by Salomon Smith Barney and/or its

affiliates, the percentage of that Portfolio's net assets invested in

such securities will not exceed one percent.

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

the Consulting Group for investment advisory services rendered to such

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

Consulting Group retains no more than 20 basis points from any

Portfolio (with the exception of the Government Money Investments

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

the Trust will retain no investment management fee) which contains

investments attributable to the Plan investor.

(k) With respect to its participation in the TRAK Program prior to

purchasing Trust shares,

(1) Each Plan will receive the following written or oral

disclosures from the Consulting Group:

(A) A copy of the Prospectus for the Trust discussing the

investment objectives of the Portfolios comprising the Trust, the

policies employed to achieve these objectives, the corporate

affiliation existing between the Consulting Group, Salomon Smith Barney

and its subsidiaries and the compensation paid to such entities.\6\

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\6\ The fact that certain transactions and fee arrangements are

the subject of an administrative exemption does not relieve the

Independent Plan Fiduciary from the general fiduciary responsibility

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

expects the Independent Plan Fiduciary to consider carefully the

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

fees paid directly to Salomon Smith Barney or to other third parties

and/or indirectly through the Trust to Smith Barney.

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(B) Upon written or oral request to Salomon Smith Barney, a

Statement of Additional Information supplementing the Prospectus which

describes the types of securities and other instruments in which the

Portfolios may invest, the investment policies and strategies that the

Portfolios may utilize and certain risks attendant to those

investments, policies and strategies.

(C) A copy of the investment advisory agreement between the

Consulting Group and such Plan relating to participation in the TRAK

Program and, if applicable, informing Plan investors of the Automatic

Reallocation Option.

(D) Upon written request of Salomon Smith Barney, a copy of the

respective investment advisory agreement between the Consulting Group

and the Sub-Advisers.

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

arrangement negotiated between the Consulting Group and the Plan, an

explanation by a Salomon Smith Barney Financial Consultant (the

Financial Consultant) to eligible participants in such Plan, of the

services offered under the TRAK Program and the operation and

objectives of the Portfolios.

(F) A copy of PTE 94-50 as well as the proposed exemption and the

final exemption pertaining to the exemptive relief described herein.

(2) If accepted as an investor in the TRAK Program, an Independent

Plan Fiduciary of an IRA or Keogh Plan, is required to acknowledge, in

writing, prior to purchasing Trust shares that such fiduciary has

received copies of the documents described above in subparagraph (k)(1)

of this Section.

(3) With respect to a Section 404(c) Plan, written acknowledgement

of the receipt of such documents will be provided by the Independent

Plan Fiduciary (i.e., the Plan administrator, trustee or named

fiduciary, as the recordholder of Trust shares). Such Independent Plan

Fiduciary will be required to represent in writing to Salomon Smith

Barney that such fiduciary is (a) independent of Salomon Smith Barney

and its affiliates and (b) knowledgeable with respect to the Plan in

administrative matters and funding matters related thereto, and able to

make an informed decision concerning participation in the TRAK Program.

(4) With respect to a Plan that is covered under Title I of the

Act, where investment decisions are made by a trustee, investment

manager or a named fiduciary, such Independent Plan Fiduciary is

required to acknowledge, in writing, receipt of such documents and

represent to Salomon Smith Barney that such fiduciary is (a)

independent of Salomon Smith Barney and its affiliates, (b) capable of

making an independent decision regarding the investment of Plan assets

and (c) knowledgeable with respect to the Plan in administrative

matters and funding matters related thereto, and able to make an

informed decision concerning participation in the TRAK Program.

(l) Subsequent to its participation in the TRAK Program, each Plan

receives the following written or oral disclosures with respect to its

ongoing participation in the TRAK Program:

(1) The Trust's semi-annual and annual report which will include

financial statement for the Trust and investment management fees paid

by each Portfolio.

(2) A written quarterly monitoring statement containing an analysis

and an

[[Page 16492]]

evaluation of a Plan investor's account to ascertain whether the Plan's

investment objectives have been met and recommending, if required,

changes in Portfolio allocations.

(3) If required by the arrangement negotiated between the

Consulting Group and a Section 404(c) Plan, a quarterly, detailed

investment performance monitoring report, in writing, provided to an

Independent Plan Fiduciary of such Plan showing, Plan level asset

allocations, Plan cash flow analysis and annualized risk adjusted rates

of return for Plan investments. In addition, if required by such

arrangement, Financial Consultants will meet periodically with

Independent Plan Fiduciaries of Section 404(c) Plans to discuss the

report as well as with eligible participants to review their accounts'

performance.

(4) If required by the arrangement negotiated between the

Consulting Group and a Section 404(c) Plan, a quarterly participant

performance monitoring report provided to a Plan participant which

accompanies the participant's benefit statement and describes the

investment performance of the Portfolios, the investment performance of

the participant's individual investment in the TRAK Program, and gives

market commentary and toll-free numbers that will enable the

participant to obtain more information about the TRAK Program or to

amend his or her investment allocations.

(5) On a quarterly and annual basis, written disclosures to all

Plans of the (a) percentage of each Portfolio's brokerage commissions

that are paid to Salomon Smith Barney and its affiliates and (b) the

average brokerage commission per share paid by each Portfolio to

Salomon Smith Barney and its affiliates, as compared to the average

brokerage commission per share paid by the Trust to brokers other than

Salomon Smith Barney and its affiliates, both expressed as cents per

share.

(m) Salomon Smith Barney shall maintain, for a period of six years,

the records necessary to enable the persons described in paragraph (n)

of this Section to determine whether the conditions of this exemption

have been met, except that (1) a prohibited transaction will not be

considered to have occurred if, due to circumstances beyond the control

of Salomon Smith Barney and/or its affiliates, the records are lost or

destroyed prior to the end of the six year period, and (2) no party in

interest other than Salomon Smith Barney shall be subject to the civil

penalty that may be assessed under section 502(i) of the Act, or to the

taxes imposed by section 4975(a) and (b) of the Code, if the records

are not maintained, or are not available for examination as required by

paragraph (n) below.

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

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

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

Section II shall be unconditionally available at their customary

location during normal business hours by:

(A) Any duly authorized employee or representative of the

Department or the Service;

(B) Any fiduciary of a participating Plan or any duly authorized

representative of such fiduciary;

(C) Any contributing employer to any participating Plan or any duly

authorized employee representative of such employer; and

(D) Any participant or beneficiary of any participating Plan, or

any duly authorized representative of such participant or beneficiary.

(2) None of the persons described above in subparagraphs (B)-(D) of

this paragraph (n) shall be authorized to examine the trade secrets of

Salomon Smith Barney or commercial or financial information which is

privileged or confidential.

Section III. Definitions

For purposes of this exemption,

(a) The term ``Salomon Smith Barney'' means Salomon Smith Barney

Inc. and any affiliate of Salomon Smith Barney, as defined in paragraph

(b) of this Section III.

(b) An ``affiliate'' of Salomon Smith Barney includes--

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

intermediaries, controlling, controlled by, or under common control

with Salomon Smith Barney. (For purposes of this subsection, the term

``control'' means the power to exercise a controlling influence over

the management or policies of a person other than an individual.)

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

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

officer, director or a 5 percent partner or owner.

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

independent of Salomon Smith Barney and its affiliates and is either--

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

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

(2) A participant in a Keogh Plan;

(3) An individual covered under (A) a self-directed IRA, or (B) a

Section 403(b) Plan which invests in Trust shares;

(4) A trustee, investment manager or named fiduciary responsible

for investment decisions in the case of a Title I Plan that does not

permit individual direction as contemplated by Section 404(c) of the

Act; or

(5) A participant in a Plan, such as a Section 404(c) Plan, who is

permitted under the terms of such Plan to direct, and who elects to

direct the investment of assets of his or her account in such Plan.

Section IV. Effective Dates

This exemption is effective as of July 31, 1993 with respect to the

transactions described in Section I.A. and B.(1). of this grant notice.

It is also effective as of March 29, 1994 for transactions involving a

daily-traded collective investment fund that was added to the TRAK

Program pursuant to PTE 94-50. With respect to Section I.B(2) and

Section II(f)(1)-(4) of the General Conditions of this grant notice,

which set forth the amendments to PTE 94-50, this exemption is

effective as of November 9, 1998.

The availability of this exemption is subject to the express

condition that the material facts and representations contained in the

application for exemption are true and complete and accurately describe

all material terms of the transactions. In the case of continuing

transactions, if any of the material facts or representations described

in the application change, the exemption will cease to apply as of the

date of such change. In the event of any such change, an application

for a new exemption must be made to the Department.

For a more complete statement of the facts and representations

supporting the Department's decision to grant the case of continuing

transactions, if any of the material facts or representations described

in the application change, the exemption will cease to apply as of the

date of such change. In the event of any such change, an application

for a new exemption must be made to the Department.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the proposed exemption and PTEs 92-77 and 94-50 which are cited above.

[[Page 16493]]

Signed at Washington, DC, this 30th day of March, 1999.

Ivan L. Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 99-8226 Filed 4-2-99; 8:45 am]

BILLING CODE 4510-29-P