Rules and Regulations. Notice of proposed exemptions

Agency: Pension and Welfare Benefits Administration, Labor
Action: Notice of proposed exemptions
Citation: FR Doc. 01-24151 · Application No. D-10954, et al.

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 (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 request 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.

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. Metropolitan Life Insurance Company, (MetLife Insurance Company) and Its Affiliates (collectively, MetLife), Located in New York, NY [Application No. D-10954] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Act (or ERISA) and section 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 1 1 For purposes of this proposed exemption, references to provisions of the Act refer also to corresponding provisions of the Code. Section I. Retroactive Exemption for the Acquisition, Holding and Disposition of MetLife, Inc. Common Stock If the proposed exemption is granted, the restrictions of sections 406(a)(1)(D), 406(b)(1) and section 406(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)(D) and (E) of the Code, shall not apply, as of December 7, 2000 until the date this proposed exemption is granted, to the acquisition, holding and disposition of the common stock of MetLife, Inc. (the MetLife, Inc. Stock), by Index and Model-Driven Funds (collectively, the Funds) that are managed by MetLife, in which client plans of MetLife invest, provided that the following conditions and the General Conditions of Section III are met: (a) The acquisition or disposition of MetLife, Inc. Stock is for the sole purpose of maintaining strict quantitative conformity with the relevant index upon which the Index or Model-Driven Fund is based, and does not involve any agreement, arrangement or understanding regarding the design or operation of the Fund acquiring MetLife, Inc. Stock which is intended to benefit MetLife or any party in which MetLife may have an interest. (b) All aggregate daily purchases of MetLife, Inc. Stock by the Funds do not exceed on any particular day the greater of— (1) 15 percent of the average daily trading volume for the MetLife, Inc. Stock, occurring on the applicable exchange and automated trading system (as described in Section I(c) below) for the previous 5 business days, or (2) 15 percent of the trading volume for MetLife, Inc. Stock occurring on the applicable exchange and automated trading system on the date of the transaction, as determined by the best available information for the trades occurring on that date. (c) All purchases and sales of MetLife, Inc. Stock occur (i) either on a recognized U.S. securities exchange (as defined in Section IV(j) below), so long as the broker is acting on an agency basis; (ii) through an automated trading system (as defined in Section IV(i) below) operated by a broker-dealer independent of MetLife that is registered under the Securities Exchange Act of 1934 (the 1934 Act) and thereby subject to regulation by the Securities and Exchange Commission (SEC), or an automated trading system operated by a recognized U.S. securities exchange, which, in either case, provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) in a direct, arm's length transaction entered into on a principal basis with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC. (d) No transactions by a Fund involve purchases from, or sales to, MetLife (including officers, directors, or employees thereof), or any party in interest that is a fiduciary with discretion to invest plan assets into the Fund (unless the transaction by the Fund with such party in interest would otherwise be subject to an exemption). (e) No more than 5 percent of the total amount of MetLife, Inc. Stock, that is issued and outstanding at any time, is held in the aggregate by Index and Model-Driven Funds managed by MetLife. (f) MetLife, Inc. Stock constitutes no more than 5 percent of any independent third party index on which the investments of an Index or Model-Driven Fund are based. (g) A fiduciary of a plan, which is independent of MetLife, authorizes the investment of such plan's assets in an Index or Model-Driven Fund which purchases and/or holds MetLife, Inc. Stock, pursuant to the procedures described herein. (h) A fiduciary independent of the MetLife directs the voting of MetLife, Inc. Stock held by an Index or Model-Driven Fund on any matter in which shareholders of MetLife, Inc. Stock are required or permitted to vote. Section II. Prospective Exemption for the Acquisition, Holding and Disposition of MetLife, Inc. Stock and/or the Common Stock of a MetLife Affiliate If the proposed exemption is granted, the restrictions of sections 406(a)(1)(D), 406(b)(1) and section 406(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)(D) and (E) of the Code, shall not apply to the acquisition, holding and disposition of MetLife, Inc. Stock and/or common stock issued by a MetLife affiliate (the MetLife Affiliate Stock; together, the MetLife Stock), by Index and Model-Driven Funds that are managed by MetLife, in which client plans of MetLife invest, provided that the following conditions and the General Conditions of Section III are met: (a) The acquisition or disposition of MetLife Stock is for the sole purpose of maintaining strict quantitative conformity with the relevant index upon which the Index or Model-Driven Fund is based, and does not involve any agreement, arrangement or understanding regarding the design or operation of the Fund acquiring MetLife Stock which is intended to benefit MetLife or any party in which MetLife may have an interest. (b) Whenever MetLife Stock is initially added to an index on which an Index or Model-Driven Fund is based, or initially added to the portfolio of an Index or Model-Driven Fund, all acquisitions of MetLife Stock necessary to bring the Fund's holdings of such stock either to its capitalization-weighted or other specified composition in the relevant index, as determined by the independent organization maintaining such index, or to its correct weighting as determined by the model which has been used to transform the index, occur in the following manner: (1) Purchases are from, or through, only one broker or dealer on a single trading day; (2) Based on the best available information, purchases are not the opening transaction for the trading day; (3) Purchases are not effected in the last half hour before the scheduled close of the trading day; (4) Purchases are at a price that is not higher than the lowest current independent offer quotation, determined on the basis of reasonable inquiry from non-affiliated brokers; (5) Aggregate daily purchases do not exceed 15 percent of the average daily trading volume for the security, as determined by the greater of either (i) the trading volume for the security occurring on the applicable exchange and automated trading system on the date of the transaction, or (ii) an aggregate average daily trading volume for the security occurring on the applicable exchange and automated trading system for the previous 5 business days, both based on the best information reasonably available at the time of the transaction; (6) All purchases and sales of MetLife Stock occur either (i) on a recognized U.S. securities exchange (as defined in Section IV(j) below), (ii) through an automated trading system (as defined in Section IV(i) below) operated by a broker-dealer independent of MetLife that is registered under the 1934 Act, and thereby subject to regulation by the SEC, which provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) through an automated trading system (as defined in Section IV(i) below) that is operated by a recognized U.S. securities exchange (as defined in Section IV(j) below), pursuant to the applicable securities laws, and provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer; and (7) If the necessary number of shares of MetLife Stock cannot be acquired within 10 business days from the date of the event which causes the particular Fund to require MetLife Stock, MetLife appoints a fiduciary which is independent of MetLife to design acquisition procedures and monitor compliance with such procedures. (c) Subsequent to acquisitions necessary to bring a Fund's holdings of MetLife Stock to its specified weighting in the index or model pursuant to the restrictions described in Section II(b) above, all aggregate daily purchases of MetLife Stock by the Funds do not exceed on any particular day the greater of: (1) 15 percent of the average daily trading volume for MetLife Stock occurring on the applicable exchange and automated trading system (as defined below) for the previous 5 business days, or (2) 15 percent of the trading volume for MetLife Stock occurring on the applicable exchange and automated trading system (as defined below) on the date of the transaction, as determined by the best available information for the trades that occurred on such date. (d) All transactions in MetLife Stock not otherwise described above in Section II (b) are either—(i) entered into on a principal basis in a direct, arm's length transaction with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC, (ii) effected on an automated trading system (as defined in Section IV(i) below) operated by a broker-dealer independent of MetLife that is subject to regulation by either the SEC or another applicable regulatory authority, or an automated trading system operated by a recognized U.S. securities exchange (as defined in Section IV(j) below) which, in either case, provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) effected through a recognized U.S. securities exchange (as defined in Section IV(j) below), so long as the broker is acting on an agency basis. (e) No transactions by a Fund involve purchases from, or sales to, MetLife (including officers, directors, or employees thereof), or any party in interest that is a fiduciary with discretion to invest plan assets into the Fund (unless the transaction by the Fund with such party in interest would otherwise be subject to an exemption). (f) No more than 5 percent of the total amount of MetLife Stock, that is issued and outstanding at any time, is held in the aggregate by Index and Model-Driven Funds managed by MetLife. (g) MetLife Stock constitutes no more than 5 percent of any independent third party index on which the investments of an Index or Model-Driven Fund are based. (h) A fiduciary of a plan which is independent of MetLife authorizes the investment of such plan's assets in an Index or Model-Driven Fund which purchases and/or holds MetLife Stock, pursuant to the procedures described herein. (i) A fiduciary independent of the MetLife directs the voting of MetLife Stock held by an Index or Model-Driven Fund on any matter in which shareholders of MetLife Stock are required or permitted to vote. Section III. General Conditions (a) MetLife maintains or causes to be maintained for a period of six years from the date of the transaction the records necessary to enable the persons described in paragraph (b) of this Section III 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 MetLife, the records are lost or destroyed prior to the end of the six year period, and (2) no party in interest other than MetLife 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 (b) below. (b)(1) Except as provided in paragraph (b)(2) of this Section III and notwithstanding any provisions of section 504(a)(2) and (b) of the Act, the records referred to in paragraph (a) of this Section III are unconditionally available at their customary location for examination during normal business hours by— (A) Any duly authorized employee or representative of the Department, the Internal Revenue Service or the SEC, (B) Any fiduciary of a plan participating in an Index or Model-Driven Fund who has authority to acquire or dispose of the interests of the plan, or any duly authorized employee or representative of such fiduciary, (C) Any contributing employer to any plan participating in an Index or Model-Driven Fund or any duly authorized employee or representative of such employer, and (D) Any participant or beneficiary of any plan participating in an Index or Model-Driven Fund, or a representative of such participant or beneficiary. (2) None of the persons described in subparagraphs (B) through (D) of this Section III(b)(1) shall be authorized to examine trade secrets of MetLife or commercial or financial information which is considered confidential. Section IV. Definitions (a) The term “Index Fund” means any investment fund, account or portfolio sponsored, maintained, trusteed, or managed by MetLife, 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, as described in Section IV(c) below, by either (i) replicating the same combination of securities which compose such Index or (ii) sampling the securities which compose such Index based on objective criteria and data; (2) For which MetLife does not use its discretion, or data within its control, to affect the identity or amount of securities to be purchased or sold; (3) That contains “plan assets” subject to the Act, pursuant to the Department's regulations (see 29 CFR 2510.3-101, Definition of “plan assets”—plan investments); and, (4) That involves no agreement, arrangement, or understanding regarding the design or operation of the Fund which is intended to benefit MetLife or any party in which MetLife may have an interest. (b) The term “Model-Driven Fund” means any investment fund, account or portfolio sponsored, maintained, trusteed, or managed by MetLife, 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 MetLife, to transform an independently maintained Index, as described in Section IV(c) below; (2) Which contains “plan assets” subject to the Act, pursuant to the Department's regulations (see 29 CFR 2510.3-101, Definition of “plan assets”—plan investments); and (3) 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 MetLife or any party in which MetLife may have an interest. (c) 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, 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, or (C) A public stock exchange or association of securities dealers; and, (2) The index is created and maintained by an organization independent of MetLife; and, (3) The index is a generally-accepted standardized index of securities which is not specifically tailored for the use of MetLife. (d) The term “opening date” means the date on which investments in or withdrawals from an Index or Model-Driven Fund may be made. (e) The term “Buy-up” means an acquisition of MetLife Stock by an Index or Model-Driven Fund in connection with the initial addition of such stock to an independently maintained index upon which the Fund is based or the initial investment of a Fund in such stock. (f) The term “MetLife” refers to Metropolitan Life Insurance Company, its parent, MetLife, Inc. and their current or future affiliates, as defined below in paragraph (g). (g) An “affiliate” of MetLife includes: (1) Any person, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the person; (2) Any officer, director, employee or relative of such person, or partner of any such person; and (3) Any corporation or partnership of which such person is an officer, director, partner or employee. (h) The term “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual. (i) The term “automated trading system” means an electronic trading system that functions in a manner intended to simulate a securities exchange by electronically matching orders on an agency basis from multiple buyers and sellers, such as an “alternative trading system” within the meaning of the SEC's Reg. ATS [17 CFR Part 242.300], as such definition may be amended from time to time, or an “automated quotation system” as described in Section 3(a)(51)(A)(ii) of the 1934 Act [15 U.S.C. 8c(a)(51)(A)(ii)]. (j) The term “recognized U.S. securities exchange” means a U.S. securities exchange that is registered as a “national securities exchange” under Section 6 of the 1934 Act (15 U.S.C. 78f), as such definition may be amended from time to time, which performs with respect to securities the functions commonly performed by a stock exchange within the meaning of definitions under the applicable securities laws (e.g., 17 CFR Part 240.3b-16). Effective Date: If granted, this proposed exemption will be effective as of December 7, 2000 with respect to the transactions described in Section I above, and as of the date grant notice is published in the Federal Register for the transactions described in Section II above. Summary of Facts and Representations 1. MetLife Insurance Company (or the Applicant) is a life insurance company organized under the laws of the State of New York and subject to supervision and examination by the Superintendent of Insurance of the State of New York. MetLife Insurance Company is a wholly owned subsidiary of MetLife, Inc., a publicly-held Delaware corporation. As of December 31, 2000, MetLife Insurance Company, including its insurance company subsidiaries, had total assets under management of approximately $302.3 billion and had approximately $2 trillion of life insurance in force. 2. Among the insurance products and services offered, MetLife Insurance Company and certain of its affiliates provide funding, asset management and other services for thousands of ERISA-covered employee benefit plans. The Applicant also maintains pooled and single plan separate accounts in which ERISA-covered plans invest. Alone or with its affiliates, MetLife Insurance Company may manage all or a portion of the separate account assets. Further, MetLife Insurance Company has a number of subsidiaries and affiliates that provide a variety of financial services, including investment management and brokerage services. MetLife Insurance Company is also the investment manager, adviser or an affiliate of the investment manager or adviser with respect to various portfolios subject to ERISA that are invested in a strategy which tracks or transforms an index maintained by a third party. The index may include the stock issued by MetLife, Inc. or an affiliate. 3. MetLife acts as investment manager of institutional accounts, including employee benefit plans with assets totaling approximately $28 billion. Additionally, MetLife provides directed trust or investment management services to various employee benefit plans. MetLife is, to the extent of the provision of investment management services, a fiduciary of these plans. As a fiduciary, MetLife may be either directed by an independent plan fiduciary or plan participants that have the ability to direct investments for their own plan accounts. Alternatively, in those cases in which MetLife manages the investments, the Applicant represents that it does not exercise any discretionary authority over whether an employee benefit plan invests in particular Index or Model-Driven Funds. 4. MetLife manages different collective investment funds, trusts and separate accounts in various ways to enable plan assets to be diversified to reduce risk and to be invested in the types of investments that a particular manager for a plan may determine is appropriate at a particular time. Index Funds and Model-Driven Funds are two examples of MetLife's separate account products which include plan investors. An Index Fund, as defined above, may be a separately-managed account, an insurance company separate account, a collective investment fund, or collective trust, the objective of which is the replication of the performance of an independently-maintained stock or bond index representing the performance of a specific segment of the public market for equity or debt securities. The Index Funds are passively-managed, in that the choice of stocks or bonds purchased and sold, and the volume purchased and sold, are made according to predetermined third party indexes rather than according to active evaluation of the investments. Since December 7, 2000, there have been 5 Index Funds holding the assets of ERISA-covered plans that have acquired, held and/or disposed of MetLife, Inc. Stock. A Model-Driven Fund, as defined above, may be a separately-managed account, an insurance company separate account, a collective trust or a collective investment fund, the performance of which is based on computer models using prescribed objective criteria to transform an independently-maintained stock or bond index representing the performance of a specific segment of the public market for equity or debt securities. The portfolio of a Model-Driven Fund is determined by the details of the computer model, which examines structural aspects of the stock or bond market rather than the underlying values of such securities. An example of a Model-Driven Fund would include a fund which “transforms” an index, making investments according to a computer model which uses such data as earnings, dividends and price earnings ratios for common stocks included in the index. According to the Applicant, the process for the establishment and operation of all Funds, which are model-driven, is disciplined. Objective rules are established for each model. Such Funds operate pursuant to pre-specified computer programs, the rules and programs are changed only infrequently. 5. MetLife currently offers a number of separate account products that are invested according to the criteria of various third party indexes or are model-driven based on such indexes. These indexes are compiled by financial information agencies that are engaged in the provision of financial information or securities brokerage services to institutional investors and/or are publishers of financial information. For example, some Funds track the Russell 2000 Index, 2 while other funds track the Standard & Poor's 500 Composite Stock Price Index (the S&P 500 Index). 3 Most of the Funds track stock indexes, although some Funds track indexes of debt securities, such as the Lehman Brothers Bond Indexes. 4 In each instance, the indexes are compiled by organizations that are independent of MetLife and are generally-accepted standardized indexes of securities that are not tailored for the use of MetLife. 2 The Russell 2000 Index was established and is maintained by the Frank Russell Company, which is not an affiliate of MetLife. The Russell 2000 Index is a subset of the larger Russell 3000 Index. The Russell 3000 Index consists of the largest 3,000 publicly-traded stocks of U.S. domiciled corporations, identified by the Frank Russell Company, and includes large, medium and small stocks. 3 The S&P 500 Index is composed of 500 stocks that are traded on the New York Stock Exchange and the NASDAQ National Market System. The S&P 500 Index is a market-weighted index (i.e., shares outstanding times the stock price) in which each company's influence on the Index's performance is directly proportional to its market value. 4 The indexes of debt securities used for the Funds, such as the Lehman Brothers Bond Index, consist primarily of high quality fixed-income securities representing the U.S. Government, corporate, and mortgage-backed securities sectors of the bond market in the U.S. In this regard, MetLife's fixed income Index Fund portfolios are currently managed against the Lehman Aggregate Bond Index and the Lehman Government/Credit Index. However, MetLife is not represented in either Lehman Brothers Bond Index nor does MetLife hold any of its debt securities in its separate accounts. 6. In addition to Funds that are separate accounts or collective investment funds, MetLife may have investment responsibility for individual investment funds which are separate portfolios for various client accounts, including employee benefit plans, where the portfolio is invested in accordance with a third party index or a model based on that index. The Applicant represents that the ability of all Funds to invest in MetLife Stock when the stock is included in an index would improve the tracking of such indexes. 7. Accordingly, the Applicant requests an administrative exemption from the Department. If granted, the exemption will permit the Applicant and its current or future affiliates to maintain separate accounts, collective funds or trusts that hold securities issued by MetLife, Inc. and/or the affiliated entities, provided certain conditions enumerated in the operative language of the exemption are met. For purposes of the exemption, the Applicant and its affiliates are collectively referred to as “MetLife.” Specifically, the exemption will allow Index and Model-Driven Funds which are managed by the Applicant or its affiliates, in which client plans of MetLife participate, to invest in MetLife Stock if such stock is included among the securities listed in the index utilized by the Fund. The Applicant is not requesting, nor is the Department providing, administrative exemptive relief herein for plans sponsored by MetLife. MetLife believes that investments on behalf of its in house plans in Index and Model-Driven Funds have been made (and will be made) in accordance with the statutory exemption provided under section 408(e) of the Act. 5 Therefore, the subject exemption will apply to client plans of MetLife only. With respect to its client plans, the Applicant states that plan fiduciaries which are independent of MetLife have authorized or will authorize the investment of a plan's assets in an Index or Model-Driven Fund which purchases and/or holds MetLife Stock pursuant to procedures described herein. 5 The Department is not providing an opinion in this proposed exemption on whether the conditions of section 408(e) of the Act have been or will be met for such transactions. The Applicant requests that the proposed exemption be made effective as of December 7, 2000 with respect to investments in MetLife, Inc. Stock by the subject Funds. The Applicant is not requesting retroactive relief for investments by the Funds in MetLife Affiliate Stock inasmuch as these Funds have not held such stock. 6 Further, the Applicant states that any exemptive relief for cross-trades of securities, including MetLife, Inc. Stock, by Index and Model-Driven Funds maintained by it should be considered separately. 7 6 See 29 CFR 2510.3-101; Definition of “plan assets”—plan investments. 7 In this regard, the Department directs interested persons to the Proposed Class Exemption for Cross-Trades of Securities by Index and Model-Driven Funds (the Cross-Trading Proposal) which was published in the Federal Register on December 15, 1999 (64 FR 70057). 8. The Applicant states that the proposed exemption is necessary to allow Funds holding “plan assets” to purchase and hold MetLife Stock in order to replicate the capitalization-weighted or other specified composition of MetLife Stock in an independently-maintained, third party index used by an Index Fund or to achieve the desired transformation of an index used to create a portfolio for a Model-Driven Fund. In addition, the Applicant represents that when MetLife Stock is added to an index on which a Fund is based, or when MetLife Stock is added to the portfolio of a Fund which tracks an index that includes MetLife Stock, all acquisitions necessary, as an initial matter, to bring the Fund's holdings of MetLife Stock to its capitalization or other specified weighting in the applicable index, 8 will comply with conditions (see Section I(b)(1)-(7) above) that are designed to prevent possible market price manipulation and which are based, in part, on the restrictions of SEC Rule 10b-18. 9 8 These instances are referred to herein as a “Buy-up.” The Applicant anticipates that acquisitions of MetLife Stock by an Index or Model-Driven Fund in a “Buy-up” will occur within 10 business days from the date of the event which causes the particular Fund to acquire MetLife Stock. MetLife does not anticipate that the amounts of MetLife Stock acquired by a Fund in a “Buy-up” will be significant. In this regard, the Department notes that the conditions required herein are designed to minimize the market impact of purchases made by the Funds in any “Buy-up” of MetLife Stock. 9 SEC Rule 10b-18 provides a “safe harbor” for issuers of securities from section 9(a)(2) of the 1934 Act and SEC Rule 10b-5 (which generally prohibits persons from manipulating the price of a security and engaging in fraud in connection with the purchase or sale of a security). The conditions required for a “Buy-up” of MetLife Stock are as follows: • Purchases will be from, or through, only one broker or dealer on a single trading day; • Based on the best available information, purchases will not be the opening transaction for the trading day; • Purchases will not be effected in the last half hour before the scheduled close of the trading day; • Purchases will be at a price that is not higher than the lowest current independent offer quotation, determined on the basis of reasonable inquiry from non-affiliated brokers; • Aggregate daily purchases will not exceed 15 percent of the average daily trading volume for the security, as determined by the greater of either (i) the trading volume for the security occurring on the applicable exchange and automated trading system on the date of the transaction, or (ii) an aggregate average daily trading volume for the security occurring on the applicable exchange and automated trading system for the previous 5 business days, both based on the best information reasonably available at the time of the transaction; • All purchases and sales of MetLife Stock will occur either (i) on a recognized U.S. securities exchange [as defined in Section IV(j)], (ii) through an automated trading system [as defined in Section IV(i)] operated by a broker-dealer independent of MetLife that is registered under the 1934 Act, and thereby subject to regulation by the SEC, which provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) through an automated trading system [as defined in Section IV(i)] that is operated by a recognized U.S. securities exchange [as defined in Section IV(j)], pursuant to the applicable securities laws, and provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer; and • If the necessary number of shares of MetLife Stock cannot be acquired within 10 business days from the date of the event which causes the particular Fund to require MetLife Stock, MetLife will appoint an independent fiduciary to design acquisition procedures and monitor compliance with such procedures. 9. MetLife states that the independent fiduciary and its principals must be completely unrelated to MetLife. The independent fiduciary must also be experienced in developing and operating investment strategies for individual and collective investment vehicles that track third party indexes. Furthermore, the independent fiduciary must not act as the broker for any purchases or sales of MetLife Stock and will not receive any consideration as a result of the initial acquisition program. As its primary goal, the independent fiduciary will develop trading procedures that minimize the market impact of purchases made pursuant to the initial acquisition program by the particular Fund. Thus, the Applicant expects that, under the trading procedures established by the independent fiduciary, the trading activities will be conducted in a low profile, mechanical, non-discretionary manner and would involve a number of small purchases over the course of each day, randomly-timed. The Applicant further expects that such a program will allow it to acquire the necessary shares of MetLife Stock for the Funds with minimum impact on the market and in a manner that will be in the best interests of any employee benefit plans that participate in such Funds. The independent fiduciary will also be required to monitor compliance with the trading program and procedures developed for the initial acquisition of MetLife Stock. During the course of any initial acquisition program, the independent fiduciary will be required to review the activities weekly to determine compliance with the trading procedures and notify MetLife should any non-compliance be detected. Should the trading procedures need modifications due to unforeseen events or consequences, the independent fiduciary will be required to consult with MetLife and must approve in advance any alteration of the trading procedures. 10. Subsequent to the initial acquisitions necessary to bring a Fund's holdings of MetLife Stock to their specified weightings in the index or model pursuant to the restrictions described above, all aggregate daily purchases of MetLife Stock by the Funds will not exceed on any particular day the greater of— • 15 percent of the average daily trading volume for MetLife Stock occurring on the applicable exchange and automated trading system for the previous 5 business days, or • 15 percent of the trading volume for MetLife Stock occurring on the applicable exchange and automated trading system on the date of the transaction, as determined by the best available information for the trades that occurred on such date. 11. MetLife represents that as of December 7, 2000 until the date this proposed exemption is granted, all purchases and sales of MetLife, Inc. Stock by the Funds, other than acquisition of such stock in a Buy-up have occurred or will continue to occur in one of the following ways: (a) On a principal basis with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC; (b) through an automated trading system (as defined in Section IV(i) below) operated by a broker-dealer independent of MetLife that is subject to regulation by the SEC or another applicable regulatory agency or on an automated trading system operated by a recognized U.S. securities exchange (as defined in Section IV(j)) which, in either case, provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (c) through a recognized U.S. securities exchange (as defined in Section IV(j)), so long as the broker is acting on an agency basis. 10 10 The Department notes that no relief is being provided herein for purchases and sales of securities between a Fund and a broker-dealer acting as principal, which may be considered prohibited transactions as a result of such broker-dealer being a party in interest under section 3(14) of the Act, with respect to any plans that are investors in the Fund. However, such transactions may be covered by one or more of the Department's existing class exemptions. For example, Prohibited Transaction Class Exemption 84-14 (49 FR 9497, March 13, 1984) permits, under certain conditions, parties in interest to engage in various transactions with plans whose assets are invested in an investment fund managed by a “qualified professional asset manager” (i.e., a QPAM) who is independent of the parties in interest (with certain limited exceptions) and meets specified financial standards. In addition, MetLife represents that as of the date this proposed exemption is granted, all future transactions by the Funds involving MetLife Stock which do not occur in connection with a Buy-up of such stock by a Fund, as described above, will be either (a) entered into on a principal basis in a direct, arm's length transaction with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC; (b) effected on an automated trading system (as defined in Section IV(j) above) operated by a broker-dealer independent of MetLife that is either registered under the 1934 Act, and thereby subject to regulation by the SEC, or an automated trading system operated by a recognized U.S. securities exchange (as defined above) which, in either case, provides a mechanism for customer order to be matched on an anonymous basis without the participation of a broker-dealer; or (c) effected through a recognized U.S. securities exchange (as defined in Section IV(j) above) so long as the broker is acting on an agency basis. 12. With respect to all acquisitions and dispositions of MetLife Stock by the Funds since December 7, 2000, the Applicant states that no such transactions have involved purchases from or sales to MetLife (including officers, directors or employees thereof), or any party in interest that is a fiduciary with discretion to invest assets into the Fund. The Applicant represents that all future acquisitions and dispositions of MetLife Stock by any Index or Model-Driven Funds maintained by MetLife will also not involve any purchases from or sales to MetLife (including officers, directors or employees thereof), or any party in interest that is a fiduciary with discretion to invest assets into the Fund (unless the transaction by the Fund with such party in interest would otherwise be subject to an exemption). 11 11 In this regard, the Department is providing no opinion herein on whether such principal transactions would be covered by any existing exemption. 13. The Applicant represents that no more than 5 percent of the total outstanding shares of MetLife Stock will be held in the aggregate by the Index or Model-Driven Funds managed by MetLife. In addition, the Applicant states that MetLife Stock will not constitute more than 5 percent of the value of any independent third party index on which investments of an Index or Model-Driven Fund are based. For purposes of the acquisition and holding of MetLife, Inc. Stock by all of the Funds since December 7, 2000 until the date this proposed exemption is granted, the Applicant states that such stock will constitute no more than 5 percent of any independent third party index on which the investments in Index or Model-Driven Funds are based. For example, the Applicant notes that the current weighting of MetLife, Inc. Stock in the S&P 500 Index is 0.213 percent and its weighting in the Barra Value Index is 0.41 percent. Although some indexes include MetLife, Inc. Stock in percentages that exceed 3 percent of the index, MetLife does not currently utilize such indexes for its Index and Model-Driven Funds with “plan assets” subject to the Act. For purposes of future acquisitions and holdings of MetLife Stock by the Funds once this proposed exemption is granted, neither MetLife, Inc. Stock nor MetLife Affiliate Stock will constitute more than 5 percent of any independent third party index on which the investments of an Index or Model-Driven Fund are based. In this regard, the Applicant has identified 5 indexes which include MetLife, Inc. Stock where the current approximate capitalization weight of the index represented by MetLife, Inc. Stock exceeds 3 percent. Therefore, the Applicant requests that the proposed exemption allow MetLife to design a passive investment strategy for an Index or Model-Driven Fund which seeks to track an index that contains MetLife Stock, or which transforms such an index into a model-prescribed way, as long as the MetLife Stock does not constitute more than 5 percent of the index. With respect to an index's specified composition of particular stocks in its portfolio, the Applicant states that future Funds may track an index where the weighting for stocks listed in the index is not capitalization-weighted. However, the Applicant notes that Funds maintained by it or its affiliates may track indexes where the selection of a particular stock by the index and the amount of stock to be included in the index is not established based on the market capitalization of the corporation issuing such stock. Therefore, since an independent organization may choose to create an index where there are other index weightings for stocks composing the index, the Applicant requests that the proposed exemption allow for MetLife Stock to be acquired by a Fund in the amounts which are specified by the particular index, subject to the other restrictions imposed under this proposed exemption. In addition, the Applicant represents that, in all instances, acquisitions or dispositions of MetLife Stock by a Fund will be for the sole purpose of maintaining quantitative conformity with the relevant index upon which the Fund is based, or in the case of a Model-Driven Fund, a modified version of such an index as created by a computer model based on prescribed objective criteria and third party data. 14. The Applicant will appoint an independent fiduciary to direct the voting of any MetLife Stock held by the Funds. The independent fiduciary will be a consulting firm specializing in corporate governance issues and proxy voting on behalf of public and private pension funds. The independent fiduciary will be required to develop and follow standard guidelines and procedures for the voting of proxies by institutional fiduciaries. The Applicant will provide the independent fiduciary with all necessary information regarding the Funds that hold MetLife Stock on the record date for MetLife's shareholder meetings, and all proxy and consent materials with respect to MetLife Stock. The independent fiduciary will maintain records with respect to its activities as an independent fiduciary on behalf of the Funds, including the number of shares of MetLife Stock voted, the manner in which such shares were voted, and the rationale for the vote if the vote was not consistent with the independent fiduciary's procedures and current voting guidelines in effect at the time of the vote. The independent fiduciary will supply MetLife with the information after each shareholder meeting. The independent fiduciary will be required to acknowledge that it will be acting as a fiduciary with respect to the plans which invest in the Funds which own MetLife Stock, when voting such stock. 12 12 Currently, the Applicant is utilizing the Investor Responsibility Research Center to vote proxies related to MetLife, Inc. Stock. However, any independent fiduciary duly appointed by the Applicant has satisfied or will satisfy, in the case of a successor independent fiduciary, the criteria described above. 15. In summary, with respect to all acquisitions, holdings and dispositions of MetLife Stock by the Funds since December 7, 2000, it is represented that the subject transactions meet the statutory criteria for an exemption under section 408(a) of the Act because: (a) Each Index or Model-Driven Fund involved is based on an index, as defined in Section IV(c) above; (b) The acquisition, holding and disposition of MetLife, Inc. Stock by the Index or Model-Driven Fund is for the sole purpose of maintaining strict conformity with the relevant index upon which an Index or Model-Driven Fund is based, and will not involve an agreement, arrangement or understanding regarding the design or operation of the Fund acquiring MetLife, Inc. Stock which is intended to benefit MetLife or any party in which MetLife may have an interest; (c) All aggregate daily purchases of MetLife, Inc. Stock by the Funds do not exceed, on any particular day, the greater of (i) 15 percent of the average daily trading volume for the MetLife, Inc. Stock occurring on the applicable exchange and automated trading system for the previous 5 business days, or (ii) 15 percent of the trading volume for MetLife, Inc. Stock occurring on the applicable exchange and automated trading system on the date of the transaction, as determined by the best available information for the trades that occurred on such date; (d) All purchases and sales of MetLife, Inc. Stock, other than acquisitions of such stock in a Buy-up described above, occur either (i) on a recognized securities exchange, as defined herein, (ii) through an automated trading system (as defined herein) operated by a broker-dealer independent of MetLife that is subject to regulation by either the SEC, which provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) in a direct, arm's length transaction entered into on a principal basis with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC. (e) No transactions by a Fund involve purchases from or sales to MetLife (including officers, directors or employees thereof), or any party in interest that is a fiduciary with discretion to invest plan assets into the Fund (unless the transaction by the Fund with such party in interest would otherwise be subject to an exemption); (f) No more than 5 percent of the total amount of MetLife, Inc. Stock that is issued and outstanding at any time is held, in the aggregate, by Index or Model-Driven Funds managed by MetLife; (g) MetLife, Inc. Stock constitutes no more than 5 percent of the value of any independent third party index on which investments of an Index or Model-Driven Fund are based; (h) A plan fiduciary independent of MetLife will authorize the investment of such plan's assets in an Index or Model-Driven Fund which purchases and/or holds MetLife, Inc. Stock; and (i) A fiduciary independent of MetLife directs the voting of MetLife, Inc. Stock held by an Index or Model-Driven Fund on any matter in which shareholders of MetLife, Inc. Stock are required or permitted to vote. With respect to all acquisitions, holdings and dispositions of MetLife Stock by the Funds after this proposed exemption is granted, MetLife represents that such transactions will meet the statutory criteria for an exemption under section 408(a) of the Act because: (a) Each Index or Model-Driven Fund involved will be based on an index, as defined in Section IV(c) above; (b) The acquisition, holding and disposition of MetLife Stock by the Index or Model-Driven Fund will be for the sole purpose of maintaining strict conformity with the relevant index upon which an Index or Model-Driven Fund is based, and will not involve an agreement, arrangement or understanding regarding the design or operation of the Fund acquiring MetLife Stock which is intended to benefit MetLife or any party in which MetLife may have an interest; (c) Whenever MetLife Stock is initially added to an index on which a Fund is based, or initially added to the portfolio of a Fund (i.e., a Buy-up), all acquisitions of MetLife Stock necessary to bring the Fund's holdings of such stock either to its capitalization-weighted or other specified composition in the relevant index, as determined by the independent organization maintaining such index, or its correct weighting as determined by the computer model which has been used to transform the index, will be restricted by conditions which are designed to prevent possible market price manipulations; (d) Subsequent to acquisitions necessary to bring a Fund's holdings of MetLife Stock to its specified weighting in the index or model, pursuant to the restrictions above, all aggregate daily purchases of MetLife Stock by the Funds will not exceed the greater of (i) 15 percent of the average daily trading volume for the MetLife Stock occurring on the applicable exchange and automated trading system for the previous 5 business days, or (ii) 15 percent of the trading volume for MetLife Stock occurring on the applicable exchange and automated trading system on the date of the transaction, as determined by the best available information for the trades that occurred on such date; (e) All transactions in MetLife Stock, other than acquisitions of such stock in a Buy-up described above, will be either (i) entered into on a principal basis with a broker-dealer, in the ordinary course of its business, where such broker-dealer is independent of MetLife and is registered under the 1934 Act, and thereby subject to regulation by the SEC, (ii) effected on an automated trading system operated by a broker-dealer independent of MetLife that is subject to regulation by either the SEC or another applicable regulatory authority, or an automated trading system operated by a recognized U.S. securities exchange which, in either case, provides a mechanism for customer orders to be matched on an anonymous basis without the participation of a broker-dealer, or (iii) effected through a recognized U.S. securities exchange (as described herein) so long as the broker is acting on an agency basis; (f) No transactions by a Fund will involve purchases from or sales to MetLife (including officers, directors or employees thereof), or any party in interest that is a fiduciary with discretion to invest plan assets into the Fund (unless the transaction by the Fund with such party in interest would otherwise be subject to an exemption); (g) No more than 5 percent of the total amount of MetLife Stock that is issued and outstanding at any time will be held, in the aggregate, by Index or Model-Driven Funds managed by MetLife; (h) MetLife Stock will constitute no more than 5 percent of the value of any independent third party index on which investments of an Index or Model-Driven Fund are based; (i) A plan fiduciary independent of MetLife will authorize the investment of such plan's assets in an Index or Model-Driven Fund which purchases and/or holds MetLife Stock, pursuant to the procedures described herein; and (j) A fiduciary independent of MetLife will direct the voting of MetLife Stock held by an Index or Model-Driven Fund on any matter in which shareholders of MetLife Stock are required or permitted to vote. Notice to Interested Persons Notice of the proposed exemption will be mailed by first-class mail to interested persons, including the appropriate fiduciaries of employee benefit plans currently invested in the Index and/or Model-Driven Funds that acquire and hold MetLife Stock. The notice will include a copy of the notice of proposed exemption, as published in the Federal Register , and a supplemental statement, as required under 29 CFR 2570.43(b)(2), which shall inform interested persons of their right to comment and/or to request a hearing with respect to the proposed exemption. All notices will be sent to interested persons within 30 days of the publication of the proposed exemption in the Federal Register . Any written comments and/or requests for a hearing are due within 60 days after the date of publication of the pendency notice in the Federal Register . In addition, MetLife will provide, upon request, a copy of the proposed exemption and, if granted, a copy of the final exemption to all ERISA-covered plans which invest in any Index or Model-Driven Fund containing MetLife Stock in their respective portfolios after the date the final exemption is published in the Federal Register .