Proposed Rules. Notice of Proposed Exemptions

Agency: Employee Benefits Security Administration, Labor
Action: Notice of Proposed Exemptions. [Application Nos. and Proposed Exemptions; Putnam Fiduciary Trust Company (PFTC), The PNC Financial Services Group, Inc.; Deutsche Asset Management (UK) Limited (the Applicant); UBS Financial Services Inc. and Its Affiliates; Deutsche Bank AG and Its Affiliates (together, Deutsche Bank of the Applicant); Morgan Stanley & Co. Inc. and its current and future affiliates and subsidiaries (Morgan Stanley) and Union bank, N.A. and its affiliates (Union Bank), et al.]
Citation: 75 FR (No. 11) · FR Doc. 2010-593 · D-11502, D-11518, D-11521, D-11425, D-11448, D-11495

Summary

This document contains notices of pendency before the Department of Labor (the Department) of proposed exemptions from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). Written Comments and Hearing Requests All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this Federal Register Notice. Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing.

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. Putnam Fiduciary Trust Company (PFTC), Located in Boston, Massachusetts, [Application No. D-11425]. Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Act and section 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 CFR 2570, subpart B (55 FR 32836, 32847, August 10, 1990). Section I—Proposed Exemption Effective as of January 19, 2010, the restrictions of section 406(a) and (b) of the Act, and the taxes imposed by section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through (F) of the Code, shall not apply to either (a) the purchase or sale by a Collective Fund (as defined in Section III(b) below) of shares of a Mutual Fund (as defined in Section III(d) below) where Putnam Fiduciary Trust Company (“PFTC” or the “Applicant”) or its affiliate (PFTC and its affiliates are referred to herein as “Putnam”) is the investment advisor of the Mutual Fund as well as a fiduciary with respect to the Collective Fund (or an affiliate of such fiduciary) or (b) the receipt of fees by Putnam from a Mutual Fund for acting as an investment advisor for the Mutual Fund and/or for providing other services to the Mutual Fund which are Secondary Services (as defined in Section III(g) below) in connection with the investment by the Collective Fund in shares of the Mutual Fund, provided that the following conditions and the general conditions of Section II are met: (a) Each Collective Fund satisfies either (but not both) of the following: (1) The Collective Fund receives a cash credit equal to such Collective Fund's proportionate share of all fees charged to the Mutual Fund by Putnam for investment advisory services. Such credit shall be paid to the Collective Fund no later than the same day on which such investment advisory fees are paid to Putnam. The crediting of all such fees to the Collective Funds by Putnam is audited by an independent accounting firm on at least an annual basis to verify the proper crediting of the fees to each Collective Fund. The audit report shall be completed not later than six months after the period to which it relates; or (2) No management fees, investment advisory fees, or similar fees are paid to Putnam with respect to any of the assets of such Collective Fund that are invested in shares of the Mutual Fund. This condition does not preclude the payment of investment advisory or similar fees by the Mutual Fund to Putnam under the terms of an investment management agreement adopted in accordance with section 15 of the Investment Company Act of 1940 (the 1940 Act), nor does it preclude the payment of fees for Secondary Services to Putnam pursuant to a duly adopted agreement between Putnam and the Mutual Fund if the conditions of this proposed exemption are otherwise met. (b) The price paid or received by a Collective Fund for shares in the Mutual Fund is the net asset value (NAV) per share (as defined in Section III (h)) and is the same price that would have been paid or received for the shares by any other investor in the Mutual Fund at that time, and all other dealings between the Collective Funds and the Mutual Fund will be on a basis no less favorable to the Collective Fund than such dealings will be with the other shareholders of the Mutual Fund. (c) Putnam, including any officer or director of Putnam, does not purchase or sell shares of the Mutual Fund from or to any Collective Fund; provided that this condition shall not preclude the purchase or redemption of such shares between a Collective Fund and an affiliate of PFTC acting solely in its capacity as underwriter for the Mutual Fund, if such affiliate acts as a riskless principal, the purchase or redemption is at NAV at the time of the transaction, and the affiliate does not receive any direct or indirect compensation, spread or other consideration in connection with such purchase or redemption. (d) No sales commissions, redemption fees, or other similar fees are paid by the Collective Funds in connection with the purchase or sale of shares of the Mutual Fund. (e) For each Collective Fund, the combined total of all fees received by Putnam for the provision of services to the Collective Fund, and in connection with the provision of services to the Mutual Fund in which the Collective Fund may invest, are not in excess of “reasonable compensation” within the meaning of section 408(b)(2) of the Act. (f) Putnam does not receive any fees payable pursuant to Rule 12b-1 under the 1940 Act in connection with the transactions covered by this proposed exemption. (g) The Second Fiduciary (as defined in Section III (f) below) with respect to each plan having an interest in a Collective Fund (a “Client Plan”) receives in writing, in advance of any investment by the Collective Fund in the Mutual Fund, full and detailed disclosure of information concerning the Mutual Fund, including but not limited to: (1) A current prospectus issued by the Mutual Fund; (2) a statement describing the fees for investment advisory or similar services, any Secondary Services and all other fees to be charged to or paid by (or with respect to) the Collective Fund and by the Mutual Fund, including the nature and extent of any differential between the rates of such fees; (3) the reasons why PFTC may consider such investment to be appropriate for the Collective Fund; (4) a statement describing whether there are any limitations applicable to PFTC with respect to which Collective Fund assets may be invested in shares of the Mutual Fund and, if so, the nature of such limitations; and (5) upon request of the Second Fiduciary, a copy of both the notice of proposed exemption and a copy of the final exemption once it is published in the Federal Register , and any other reasonably available information regarding the transactions covered by this proposed exemption. (h) On the basis of the information described in paragraph (g) above, the Second Fiduciary authorizes in writing the investment of assets of the Collective Fund in the Mutual Fund and the fees to be paid by the Mutual Fund to Putnam. (i) On an annual basis, Putnam will provide to the Second Fiduciary of each Client Plan having an interest in the Collective Fund: (1) A current prospectus issued by the Mutual Fund in which the Collective Fund invests, and, upon the Second Fiduciary's request, a copy of the Statement of Additional Information for such Mutual Fund that contains a description of all fees paid by the Mutual Fund to Putnam; (2) a copy of the annual financial disclosure report prepared by Putnam that includes information about the Mutual Fund portfolios, as well as audit findings of an independent auditor, within 60 days of the preparation of the report; (3) oral or written responses to inquiries of the Second Fiduciary as they arise; (4) a statement (i) of the approximate percentage (which may be in the form of a range) of the assets of the Collective Fund that were invested in the Mutual Fund during the year and (ii) that, if the Second Fiduciary objects to the continued investment by the Collective Fund in the Mutual Fund, the Client Plan should withdraw from the Collective Fund; and (5) a form (Termination Form) expressly providing an election to withdraw from the Collective Fund, together with instructions on the use of such form. The instructions will inform the Second Fiduciary that: (i) The prior written authorization is terminable at will by the Plan, without penalty to the Plan, upon receipt by Putnam of written notice from the Second Fiduciary, and (ii) failure to return the form will result in continued authorization of Putnam to engage in the transactions described above on behalf of the Plan. However, if the Termination Form has been provided to the Second Fiduciary pursuant to Section I(j), the Termination Form need not be provided again for an annual reauthorization pursuant to this Section I(i) unless at least six months has elapsed since the form was previously provided. (j) Except as provided in Section I(j)(E), paragraph (h) of this Section I does not apply if: (A) The purchase, holding and sale of Mutual Fund shares by the Collective Fund is performed subject to the prior and continuing authorization, in the manner described in this paragraph (j), of a Second Fiduciary with respect to each Client Plan whose assets are invested in the Collective Fund. (B)(1) For each Collective Fund using the fee structure described in paragraph (a)(2) above with respect to investments in the Mutual Fund, in the event of an increase in the rate of fees paid by the Mutual Fund to Putnam regarding any investment management services, investment advisory services, or similar services that Putnam provides to the Mutual Fund over an existing rate for such services that had been authorized by a Second Fiduciary in accordance with paragraph (h) above or this paragraph (j); or (2) For each Collective Fund under this exemption (regardless of whether the fee structure described in paragraph (a)(1) or (a)(2) is used), in the event an additional Secondary Service is provided by Putnam to the Mutual Fund for which a fee is charged, or an increase in the rate of any fee paid by the Mutual Fund to Putnam for any Secondary Service that results either from an increase in the rate of such fee or from a decrease in the number or kind of services performed by Putnam for such fee over an existing rate for such Secondary Service that had been authorized by a Second Fiduciary in accordance with paragraph (h) above or this paragraph (j): Putnam will, at least 30 days in advance of the implementation of such additional service for which a fee is charged or for which there is a fee increase, provide a written notice (which may take the form of a letter or similar communication that is separate from the prospectus of the Fund and that explains the nature and amount of the additional service for which a fee is charged or of the increase in the rate of fee) to the Second Fiduciary of each Client Plan having an interest in the Collective Fund. Such written notice will include a Termination Form expressly providing an election to withdraw from the Collective Fund, together with instructions on the use of such form. (C) In the event a Second Fiduciary submits a notice in writing to PFTC objecting to the initial investment by the Collective Fund in the Mutual Fund or the implementation of such additional service for which a fee is charged or such rate of fee increase, whichever is applicable, the Client Plan on whose behalf the objection was intended is given the opportunity to terminate its investment in the Collective Fund, without penalty to such Client Plan, within such time as may be necessary to effect the withdrawal in an orderly manner that is equitable to all withdrawing Client Plans and to the non-withdrawing Client Plans. In the case of a Client Plan that elects to withdraw under this subparagraph (C), the withdrawal shall be effected prior to the initial investment by the Collective Fund in the Mutual Fund or the implementation of such additional service for which a fee is charged or such rate of fee increase, whichever is applicable. (D) Notwithstanding the foregoing subparagraphs (B) and (C), Putnam may commence providing an additional Secondary Service for a fee or implement any increase in the rate of fee paid by the Mutual Fund to Putnam prior to providing the notice referred to in subparagraph (B) above or prior to the withdrawal of an objecting Client Plan, whichever is applicable, provided that, in either such event, the Collective Fund receives a cash credit equal to the Collective Fund's proportionate share of the fee for the additional Secondary Service or such fee increase charged to the Mutual Fund by Putnam, whichever is applicable, for the period from the date of such commencement or implementation to the later of the date that is 30 days after the notice referred to in subparagraph (B) above has been provided or, if applicable, the date on which any Client Plan that objects to the provision of such additional Secondary Service or to such fee increase has withdrawn from the Collective Fund pursuant to subparagraph (C) above. Any such cash credits shall be paid to the Collective Fund, with interest thereon at the prevailing Federal funds rate plus two percent (2%), no later than the fifth business day following the receipt of the increased fee by Putnam. 1 The crediting of all such fees to the Collective Fund by Putnam will be audited by an independent accounting firm on at least an annual basis to verify the proper crediting of the fees and interest to the Collective Fund. The audit report shall be completed not later than six months after the period to which it relates. 1 Putnam will pay interest on any such amounts from the date it receives such incremental amounts to the date it makes the rebate payment to the Collective Fund. (E) In the case of a Client Plan whose assets are proposed to be invested in the Collective Fund subsequent to the implementation of the arrangement and that has not authorized the investment of assets of the Collective Fund in the Mutual Fund, the Client Plan's investment in the Collective Fund is subject to: (1) The receipt by a Second Fiduciary of the full and detailed disclosures concerning the Mutual Fund pursuant to Section I(g), above, and (2) the prior written authorization of a Second Fiduciary pursuant to Section I(h), above ( i.e. , the authorization must be provided by such new Client Plan investor in advance of the initial investment). (k) For each Collective Fund using the fee structure described in paragraph (a)(1) above with respect to investments in the Mutual Fund, the Second Fiduciary of the Client Plan receives full written disclosure in a Fund prospectus or otherwise of any increases in the rates of fees charged by Putnam to the Mutual Fund for investment advisory services, or of a decrease in the number or kind of services performed by Putnam. Section II—General Conditions (a) PFTC maintains for a period of six years the records necessary to enable the persons described in paragraph (b) below to determine whether the conditions of this exemption have been met, except that: (1) A separate prohibited transaction will not be considered to have occurred if, solely because of circumstances beyond the control of PFTC, the records are lost or destroyed prior to the end of the six-year period; and (2) No party in interest other than Putnam 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) below and notwithstanding any provisions of Section 504(a)(2) of the Act, the records referred to in paragraph (a) above are unconditionally available at their customary location for examination during normal business hours by: (i) Any duly authorized employee or representative of the Department, the Internal Revenue Service, or the Securities & Exchange Commission, (ii) Any fiduciary of a Client Plan who has authority to acquire or dispose of the interest in the Collective Fund owned by such Client Plan, or any duly authorized employee or representative of such fiduciary, and (iii) Any participant or beneficiary of a Client Plan having an interest in the Collective Fund or duly authorized employee or representative of such participant or beneficiary. (2) None of the persons described in paragraph (b)(1)(ii) or (iii) above shall be authorized to examine trade secrets of Putnam, or commercial or financial information that is privileged or confidential. Section III—Definitions (a) An “affiliate” of a person 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, relative, or partner in any such person; and (3) Any corporation or partnership of which such person is an officer, director, partner, or employee. (b) The term “Collective Fund” means any common or collective trust fund maintained by PFTC. (c) The term “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual. (d) The term “Mutual Fund” means the Putnam Prime Money Market Fund and any other money market fund that is a diversified open-end investment company registered under the 1940 Act and operated in accordance with Rule 2a-7 under the 1940 Act as to which Putnam serves as an investment adviser. Putnam may also serve as a custodian, dividend disbursing agent, shareholder servicing agent, transfer agent, fund accountant, or provider of some other “Secondary Service” (as defined below in paragraph (g) below). (e) The term “relative” means a “relative” as that term is defined in section 3(15) of the Act (or a “member of the family”) as that term is defined in section 4975(e)(6) of the Code), or a brother, a sister, or a spouse of a brother or a sister. (f) The term “Second Fiduciary” means a fiduciary of a Client Plan who is independent of, and unrelated to, Putnam. For purposes of this exemption, the Second Fiduciary will not be deemed to be independent of an unrelated to Putnam if: (1) Such fiduciary directly or indirectly controls, is controlled by, or is under common control with Putnam; (2) Such fiduciary, or any officer, director, partner, employee, or relative of the fiduciary is an officer, director, partner or employee of Putnam (or is a relative of such persons); or (3) Such fiduciary directly or indirectly receives any compensation or other consideration for his or her own personal account in connection with any transaction described in this exemption. If an officer, director, partner or employee of Putnam (or a relative of such a person), is a director of such Second Fiduciary, and if he or she abstains from participation in (i) the decision of the Client Plan to invest in, and remain invested in, the Collective Fund and (ii) the granting of any authorization contemplated by Section I(h) or any deemed authorization contemplated by Section I(i) and (j) with respect to the Collective Fund, then paragraph (f)(2) above shall not apply. (g) The term “Secondary Service” means a service other than an investment management, investment advisory, or similar service, which is provided by Putnam to the Mutual Fund, including but not limited to custodial, accounting, administrative, or any other service. (h) The term “net asset value ( i.e. , NAV)” means the amount for purposes of pricing all purchases and sales, calculated by dividing the value of all securities, determined by a method as set forth in a Fund's prospectus and statement of additional information, and other assets belonging to the Fund or portfolio of the Fund, less the liabilities charged to each such portfolio or Fund, by the number of outstanding shares. Summary of Facts and Representations 1. The applicant is Putnam Fiduciary Trust Company (PFTC), a Massachusetts trust company subject to supervision by the Massachusetts Division of Banks. PFTC is a wholly-owned subsidiary of Putnam, LLC (together with PFTC and its other wholly-owned subsidiaries, collectively referred to herein as “Putnam”). Putnam is a majority-owned subsidiary of Great-West Lifeco U.S. Inc. Putnam is a global financial services firm primarily involved in the investment management business including the management of registered, open-end investment companies (“mutual funds”), other collective investment vehicles and single-client separate accounts. As of May 31, 2009, Putnam's total assets under management were approximately $102 billion. 2. PFTC manages assets held in both collective investment vehicles (other than mutual funds) and single-client separate accounts. As of May 31, 2009, 2006, PFTC managed approximately $9 billion in assets. 3. In particular, PFTC maintains a number of collective investment funds, the assets of which are managed by PFTC on a discretionary basis (the “Collective Funds”). The Collective Funds are common or collective trust funds of a bank within the meaning of DOL Regulation 2510.3-101(h)(1)(ii) and, as such, the assets of the Collective Funds are “plan assets” subject to Title I of the Act to the extent of the interests of ERISA Plans therein. 4. Each of the Collective Funds generally has some level of cash balances and/or other assets to be invested in short-term, money market instruments. In the past, PFTC has typically invested such amounts in the short-term investment fund (the “STIF”) made available by the custodian of the particular Collective Fund's assets or some other similar money market instrument or vehicle unrelated to Putnam. 5. Putnam acts as the advisor of the Putnam Prime Money Market Fund (the “Mutual Fund”), a money market mutual fund designed to serve as a short-term investment vehicle. The Mutual Fund is registered under the Investment Company Act of 1940 and is operated in accordance with the Securities & Exchange Commission (SEC) rules relating to money market funds (see, Rule 2a-7 under the Investment Company Act of 1940, as amended). The Applicant represents that since January 2006, the yield generated by the Mutual Fund has generally been superior to the yield generated by the STIF. Accordingly, PFTC believes it would be desirable for the Collective Funds to have the flexibility to invest in the Mutual Fund when such investment is prudent and in the best interest of the Collective Funds. 2 Putnam further believes that it would be desirable to have the same flexibility to invest the assets of the Collective Funds in other money market mutual funds managed by Putnam when it is in the interest of the Collective Funds to do so. 3 2 In order to achieve the benefits of this higher yield as soon as practicable, PFTC requests that the exemption, if granted, be retroactive to the date the proposed exemption is published in the Federal Register . 3 References to the Mutual Fund in this Summary of Facts and Representations should be read to include such other money market mutual funds where the context so requires. 6. Given that an affiliate of PFTC receives investment management or advisory fees from the Mutual Fund, a decision by PFTC to cause assets of a Collective Fund to be invested in the Mutual Fund could constitute a self-dealing prohibited transaction under Section 406(b)(1) of ERISA, absent an available exemption. Putnam may also receive fees from the Mutual Fund for services provided to the Mutual Fund other than investment management, investment advisory or similar services (“Secondary Services”) in which event any increase in such fees as a result of PFTC's decision to invest assets of the Collective Funds in the Mutual Fund or the engagement of Putnam to perform an additional Secondary Service for which a fee is charged could constitute prohibited self-dealing, absent an exemption. Prohibited Transaction Exemption 77-4 (PTE 77-4, 42 FR 18732, April 8, 1977) is designed to provide exemptive relief in such situations. However, one of the conditions of PTE 77-4 is that an independent plan fiduciary approve in writing the investment of plan assets in the affiliated mutual fund. 7. In the case at hand, PFTC has not sought, and the relevant independent fiduciaries of existing ERISA Plan investors in the Collective Funds have not provided, any such written approval. Since the Collective Funds generally have numerous ERISA Plan investors (in many cases, a very large number of ERISA Plan investors), PFTC does not believe it is feasible, as a practical matter, to obtain the affirmative written approval of the relevant independent fiduciary of each and every ERISA Plan investor in the Collective Funds. Without such unanimous written approval, the exemption provided by PTE 77-4 will not be available and the Collective Funds will be precluded from investing in the Mutual Fund. 8. Similarly, in the event that Putnam is engaged to render an additional Secondary Service or any of the fees paid by the Mutual Fund is changed, PTE 77-4 would require PFTC to obtain the affirmative written approval of the relevant independent fiduciary of each ERISA Plan having an interest in the Collective Funds at the time of such engagement or change. Again, given the large number of ERISA Plans involved and the practical difficulty of obtaining an affirmative written approval from each and every one of them, it is unlikely that the requirements of PTE 77-4 would be able to be satisfied in the context of such an engagement or change. 9. No sales commissions are charged in connection with the purchase of any shares of the Mutual Fund. In addition, no 12b-1 fees are charged by the Mutual Fund with respect to any class of shares of the Mutual Fund to be purchased by the Collective Funds pursuant to the exemption transactions, nor will any redemption fees be charged in connection with any sale of shares of the Mutual Fund by the Collective Funds. Putnam, including any officer or director of Putnam, will not purchase or sell shares of the Mutual Fund from or to any Collective Fund. However, there may be purchases or redemptions of such shares between a Collective Fund and an affiliate of PFTC acting solely in its capacity as underwriter for the Mutual Fund, if the sale is at NAV, and such affiliate acts as a riskless principal and does not receive any compensation, spread or other consideration in connection with such purchase or redemption. 10. The Applicant represents that Putnam will not be providing any brokerage services for the acquisition or sale of securities by any Mutual Fund involved in this proposed exemption. 11. Prior to investing the assets of any Collective Fund in shares of the Mutual Fund, PFTC will provide advance notice to the relevant independent fiduciary of each ERISA Plan then having an interest in such Collective Fund. Such notice will include a current prospectus for the Fund and a written statement giving full disclosure of the fee structure under which either Putnam's investment advisory fees will be credited back to the Collective Fund or the investment management fees applicable to the Collective Fund with respect to the assets invested in the Mutual Fund will be waived. The notice will also describe why PFTC believes the investment of the Collective Fund's assets in the Mutual Fund may be appropriate. In the case of a Client Plan whose assets are proposed to be invested in the Collective Fund subsequent to the implementation of the arrangement and that has not authorized the investment of assets of the Collective Fund in the Mutual Fund, the Client Plan's investment in the Collective Fund is subject to the prior written authorization of a Second Fiduciary. 12. In the event the fee credit approach is utilized, the credit will not include any fees received by Putnam for Secondary Services rendered to the Mutual Fund because any such Secondary Services will not be duplicative of any services being provided by PFTC to the Collective Funds. 13. PFTC represents that, for each ERISA Plan having an interest in a Collective Fund that engages in transactions described in this proposed exemption, the combined total of all fees that Putnam will receive, directly or indirectly, with respect to such ERISA Plan's interest in the Collective Fund for the provision of services to the Collective Fund and/or to the Mutual Fund will not be in excess of “reasonable compensation” within the meaning of Section 408(b)(2) of the Act. 14. Prior to either the addition of any Secondary Service that will result in the payment of a fee by the Mutual Fund to Putnam or any increase in the rate of any fee paid to Putnam by the Mutual Fund, PFTC will provide advance notice to the relevant independent fiduciary of each ERISA Plan then having an interest in a Collective Fund as to which the utilization of the Mutual Fund has been approved. Such notice will include a description, as applicable, of the (i) additional Secondary Service to be provided by Putnam and the resultant fee payable to Putnam or (ii) increase in the rate of any such fee payable to Putnam by the Mutual Fund or from a decrease in the number or kind of services performed by Putnam. Such written notice will also include a form (the Termination Form) expressly providing an election to withdraw from the Collective Fund, together with instructions on the use of such form. The advance notice described in this representation 13 need not be furnished 30 days in advance of the effective date for a fee increase provided an amount equal to the Collective Fund's proportionate share of the fee for such additional Secondary Service or the fee increase, whichever is applicable, for the period from the date of commencement of the additional Secondary Service or implementation of the fee increase, whichever is applicable, to the date that is 30 days after the delivery of the required notice or the date of the withdrawal of any objecting Client Plan, whichever is later, is credited to the Collective Fund with interest thereon at the prevailing Federal funds rate plus two percent (2%) (“the Applicable Interest Rate”). 4 4 As an example, assume the Mutual Fund fee increase becomes effective on June 1, Putnam provides notice of the fee increase on May 16 and one (and only one) participating Plan objects to the fee increase on June 10, and the sole objecting Plan withdraws from the Collective Fund on June 20. In this case, Putnam will pay a rebate to the Collective Fund equal to the allocable portion of the fee increase for the period from June 1 ( i.e., the effective date of the fee increase) to June 20 ( i.e., the date that one objecting Plan withdrew, (with interest at the Applicable Interest Rate) because that date is later than the expiration of the 30-day notice period). 15. PFTC will maintain a system of internal accounting controls for the crediting or waiving of all relevant fees. In addition, PFTC proposes to retain Ernst & Young or another independent accounting firm to audit annually the crediting of such fees. Such audits will provide independent verification of the proper crediting of such fees. In the event an error is identified, it will be promptly corrected. If the correction requires a payment by PFTC, such payment shall include interest at the money market rate earned by the Mutual Fund. An independent accounting firm will also audit the crediting of fees and interest at the Applicable Interest Rate for the scenario described in paragraph 13, above. 16. The information described above (including (a) the information to be provided prior to the initial utilization of the Mutual Fund and (b) the information to be provided in connection with any additional Secondary Service or any increase in the rate of any fee payable by the Mutual Fund to Putnam (unless an amount equal to the Collective Fund's proportionate share of the fee for such additional Secondary Service or fee increase, whichever is applicable, is credited to the Collective Fund with interest at the Applicable Interest Rate thereon)), will be furnished to the relevant independent fiduciary of each ERISA Plan then investing in the Collective Fund not less than 30 days prior to the initiation of investment in the Mutual Fund by such Collective Fund or the implementation of the additional Secondary Service or the increase in the rate of any such fee payable to Putnam. 5 5 The requested exemption would not apply to any plans maintained by Putnam or any of its affiliates for their own employees. The Applicant represents that to the extent any such plans have an interest in a Collective Fund, the investment of such Collective Fund's assets attributable to such plans in the Mutual Fund would be covered by Prohibited Transaction Exemption 77-3 (42 FR 18734, April 8, 1977). The Department expresses no opinion herein on whether such transactions would qualify for exemptive relief under PTE 77-3. 17. In the event any such independent fiduciary submits a notice in writing to PFTC objecting to the initial utilization, additional Secondary Service or increased rate of fee, including a decrease in the number or kind of services performed by Putnam (unless an amount equal to the Collective Fund's share of the fee for such additional service or fee increase, whichever is applicable, is credited to the Collective Fund with interest at the Applicable Interest Rate thereon), the ERISA Plan on whose behalf the objection was tendered will be given the opportunity to withdraw its investment in the Collective Fund, without penalty to such ERISA Plan, within such time as may be necessary to effect such withdrawal in an orderly manner that is equitable to all withdrawing ERISA Plans and all non-withdrawing ERISA Plans. In the case of an ERISA Plan that elects to withdraw pursuant to the preceding sentence, such withdrawal shall be effected prior to (a) the initial utilization of the Mutual Fund, or (b) the implementation of the additional Secondary Service or the increase in the rate of fee (unless an amount equal to the fee for such additional Secondary Service or fee increase, whichever is applicable, for the period from the date of such implementation to the date on which the objecting Client Plan has withdrawn from the Collective Fund is credited to the Collective Fund with interest at the Applicable Interest Rate thereon); provided, however, that the Collective Fund's existing investment in the Mutual Fund need not be discontinued by reason of an ERISA Plan electing to withdraw. Putnam confirms that it will not receive any “float” with respect to its receipt of incremental fees for Secondary Services that become effective before the requisite negative consent has been obtained and that, as a result, must be credited to the Collective Fund. This is because Putnam will credit interest on any such amounts from the date it receives such incremental amounts to the date they are actually credited to the Collective Fund. Putnam emphasizes that the amount credited to the Collective Fund would not be limited to the portion of the fee increase that is allocable to the objecting Client Plan(s), but rather will be equal to the portion of the fee increase that is allocable to the Collective Fund's entire position in the Mutual Fund. Putnam represents that any such cash credits will be paid to the Collective Fund, with interest thereon at the Applicable Interest Rate, no later than the fifth business day following the receipt of the increased fee by Putnam. 6 Putnam further confirms that if a Client Plan objects to a Mutual Fund fee increase at a time when, due to extraordinary circumstances, withdrawals from the Collective Fund are suspended, then Putnam would continue to credit the allocable amount of the fee increase to the Collective Fund, with interest, until the objecting Client Plan is able to withdraw. To summarize, if Putnam were to implement an additional Secondary Service or increase the rate of fee for any Secondary Service before the expiration of the 30-day period after notice has been given to Plans, and a Plan objects and wishes to withdraw from the Collective Fund, Putnam will pay a rebate to the Collective Fund, with interest at the Applicable Interest Rate thereon, from the effective date of the fee increase to the later of the expiration of the 30-day period or the date on which the objecting Plan withdraws from the Collective Fund. Such rebate will be paid by Putnam within five business days of the date that Putnam actually receives the increased fee from the Mutual Fund. 6 As an example, assume the mutual fund fee increase is effective on June 1, Putnam provides notice of the fee increase to the participating Plans on May 31, one (and only one) participating Plan objects to the fee increase on June 25, and the sole objecting Plan withdraws from the Collective Fund on July 10. In this case, the aggregate rebate amount would be equal to the allocable portion of the fee increase for the period from June 1 ( i.e., the effective date of the fee increase) to July 10 ( i.e., the date that the sole objecting Plan withdraws, given that it is later than the expiration of the 30-day notice period). Further, assuming that Putnam receives payments of the increased fee from the Mutual Fund on the fifth day of each month, Putnam would receive a payment that includes the fee increase for the month of June on July 5 and would rebate the entire allocable portion of that fee increase to the Collective Fund within 5 business days of July 5, with interest at the Applicable Interest Rate. Moreover, on August 5, Putnam would receive another payment from the Mutual Fund that includes the fee increase for the month of July. The allocable portion of the fee increase for the period from July 1 to July 10 ( i.e., the date that the sole objecting Plan withdrew) would be rebated to the Collective Fund within 5 business days of August 5, with interest at the Applicable Interest Rate. 18. On an annual basis, Putnam will provide notice to the relevant independent fiduciary of each ERISA Plan having an interest in the Collective Fund, which notice will include: (a) The approximate percentage (which may be in the form of a range) of the Collective Fund's assets that were invested in the Mutual Fund during the year; and (b) a statement that, if the fiduciary objects to the continued investment by the Collective Fund in the Mutual Fund, the ERISA Plan should withdraw from the Collective Fund, and (c) a Termination Form 7 expressly providing an election to withdraw from the Collective Fund, together with instructions on the use of such form. Specifically, the instructions will explain that the Client Plan has the opportunity to withdraw from the Collective Fund by submitting the completed Termination Form to PFTC. Further, the instructions will provide the PFTC address to which the form must be submitted. The form will further provide that upon receipt thereof, the Client Plan's interest in the Collective Fund that is the subject of such withdrawal election will be redeemed as of the next regularly scheduled withdrawal date of the Collective Fund, following whatever advance notice period is applicable to the particular Collective Fund (assuming, of course, that such Collective Fund is not subject to a suspension of withdrawals due to extraordinary events). PFTC represents that, consistent with standard practice in the industry with respect to collective funds, the governing documents of Putnam's Collective Funds contain provisions that allow for the suspension of withdrawals in extraordinary and unusual circumstances, such as market shutdowns, etc. 7 However, if the Termination Form has been provided to the Second Fiduciary pursuant to Section I(j), the Termination Form need not be provided again for an annual reauthorization pursuant to this Section I(i) unless at least six months has elapsed since the form was previously provided. 19. All other dealings between the Collective Funds and the Mutual Fund will be on a basis no less favorable to the Collective Fund than such dealings will be with the other shareholders of the Mutual Fund. 20. In summary, PFTC represents that the exemption transactions described herein will satisfy the statutory criteria of Section 408(a) of the Act because (a) the ability to invest in the Mutual Fund will provide the Collective Funds the opportunity to enhance the yield on their cash balances and other short-term investments; (b) PFTC will require annual audits by an independent accounting firm to verify the proper crediting of the relevant fees and interest due, if applicable; (c) PFTC will provide written notice to the relevant independent fiduciary of each affected ERISA Plan in advance of (i) the initial utilization by the Collective Fund of the Mutual Fund, (ii) the commencement of an additional Secondary Service by Putnam (unless an amount equal to the Collective Fund's proportionate share of the fee for such additional Secondary Service is credited to the Collective Fund with interest at the Applicable Interest Rate thereon) or (iii) the effective date of any increase in the rate of any fee payable to Putnam by the Mutual Fund (unless an amount equal to the Collective Fund's proportionate share of the fee increase is credited to the Collective Fund with interest at the Applicable Interest Rate thereon); (d) prior to any such initial utilization, commencement or increase, such independent fiduciary will have an opportunity to express an objection and to cause the Client Plan to withdraw from the Collective Fund, provided that Putnam may commence providing an additional Secondary Service for a fee or implement an increase in the rate of fee paid by the Mutual Fund to Putnam prior to the withdrawal of the objecting Client Plan as long as the amount described in (c) above is credited to the Collective Fund; (e) no commissions or redemption fees will be paid by an ERISA Plan in connection with either the purchase or sale of shares of the Mutual Fund; (f) Putnam will not receive any 12b-1 fees as a result of the Collective Fund's purchase or holding of shares of the Mutual Fund; and (g) all dealings between the Collective Funds and the Mutual Fund will be on a basis that is at least as favorable to the ERISA Plans as such dealings are with other shareholders of the Mutual Fund.