Proposed Rules. Notice of Proposed Exemptions

Agency: Employee Benefits Security Administration, Labor
Action: Notice of Proposed Exemptions
Citation: 75 FR (No. 193) · FR Doc. 2010-24892

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). This notice includes the following proposed exemptions: D-11576, Bank of America, NA et al.; D-11591, Citigroup Inc. and its affiliates (Citigroup), the Citigroup 401(k) Plan, the Citibuilder 401(k) Plan for Puerto Rico the (Citibuilder Plan) and collectively with the Citigroup 401(k) Plan, the Participant Directed Plans, the Citigroup Pension Plan (and collectively with the Participant Directed Plans, the Plans) (the Applicants); and D-11611, The West Coast Bancorp 401(k) Plan (the Plan); et al.

Dates

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.

Supplementary Information

Notice to Interested Persons Notice of the proposed exemptions will be provided to all interested persons in the manner agreed upon by the applicant and the Department within 15 days of the date of publication in the Federal Register . Such notice shall include a copy of the notice of proposed exemption as published in the Federal Register and shall inform interested persons of their right to comment and to request a hearing (where appropriate). 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. Bank of America, NA et al. Located in Charlotte, North Carolina. Exemption Application Number D-11576 Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (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 section 406 of ERISA should be read to refer as well to the corresponding provisions of section 4975 of the Code. Section I. Covered Transactions If the proposed exemption is granted, the restrictions of sections 406(a) and 406(b) of the Act and the sanctions resulting from the application of 4975 of the Code, by reason of section 4975(c)(1)(A) through (F) of the Code, shall not apply: (a) Effective January 1, 2009: (1) To the operation of the RPT Stable Value Agreements, pursuant to the terms thereof, and to the receipt of a fee by BANA in connection therewith; and (2) to transactions under the RPT Stable Value Agreements (the RPT Wrap-Related Transactions); (b) effective April 23, 2009: (1) To the execution of the RPT Special Purpose Wrap Agreement; (2) to the operation of the RPT Special Purpose Wrap Agreement, pursuant to the terms thereof, and to the receipt of a fee by BANA in connection therewith; and (3) to transactions under the RPT Special Purpose Wrap Agreement (the Special Purpose Wrap-Related Transactions); and (c) effective January 1, 2009: (1) To the operation of the Separately Managed Account Wrap Agreements, pursuant to the terms thereof, and to the receipt of a fee by BANA in connection therewith; and (2) to transactions under the Separately Managed Account Wrap Agreements (the Separately Managed Account Wrap-Related Transactions), provided that the following conditions, as applicable, have been met. Section II. Conditions Applicable to Transactions Described in Section I(a) (a) Effective June 1, 2009, B1ackRock Advisors may change the formula for calculating the Crediting Rate with respect to the Global Wrap Account or the Global Buy and Hold Account (either, a Global Account) only after obtaining prior approval from: (1) Each financial institution that has entered into a wrap agreement covering assets included in the applicable Global Account; and (2) The Independent Fiduciary, after BlackRock Advisors has provided the Independent Fiduciary with any information that the Independent Fiduciary has reasonably requested in determining whether to approve the proposed change in the Crediting Rate formula; (b) BANA may not reset a Crediting Rate attributable to a Global Account more frequently than on a monthly basis unless: (1) A crediting rate attributable to a non-BANA wrap agreement covering assets in the same Global Account is reset more frequently than on a monthly basis; and (2) BANA resets the Crediting Rate at the same time, and in the same manner, as such other non-BANA wrap agreement crediting rate; (c) Each financial institution entering into a wrap agreement covering assets included in a Global Account obtains information from BlackRock Advisors on a monthly basis regarding the investments included in such Global Account. This information must be sufficiently detailed to enable the financial institution to independently verify that the applicable Crediting Rate was calculated properly; (d) The fee received by BANA in connection with the BANA RPT Global Wrap Agreement or the BANA RPT Buy and Hold Wrap Agreement will be reasonable relative to market conditions and risks, as determined annually by the Independent Fiduciary. Notwithstanding the above, in no event shall the fee received by BANA under the BANA RPT Global Wrap Agreement or the BANA RPT Buy and Hold Wrap Agreement exceed the maximum percentage fee paid to any other financial institution pursuant to a wrap agreement covering assets in the applicable Global Wrap Account or the Global Buy and Hold Account, as relevant; (e) The Trustee may trigger immunization with respect to the BANA RPT Global Wrap Agreement only if: (1) The Trustee triggers immunization with respect to another wrap agreement covering assets in the Global Wrap Account immediately prior to, or at the same time as, the Trustee triggers immunization with respect to the BANA RPT Global Wrap Agreement; or (2) A financial institution not affiliated with BANA triggers immunization with respect to assets in the Global Wrap Account immediately prior to, or at the same time as, the Trustee triggers immunization with respect to the BANA RPT Global Wrap Agreement; or (3) The Trustee determines that BANA is no longer financially responsible and the Independent Fiduciary determines that immunization is in the interests of Plans invested in RPT; (f) Assets held in RPT will be valued at their current fair market value on a daily basis utilizing the following BlackRock firm-wide approved valuation process: (1) Valuations will be performed without regard to whether the security is held in RPT or another account or commingled vehicle advised by BlackRock; (2) Valuations will be based on the price that may be obtained in a current arm's-length sale to an unrelated third party; (3) BlackRock will first obtain prices for securities from independent third-party sources, including index providers, broker-dealers and independent pricing services. BlackRock will maintain a hierarchy that prioritizes pricing sources by asset class or type and will value securities based on the price generated by the highest priority source. The hierarchy may vary by asset class or type, but not for a particular security; (4) If no third-party sources are available to value a security or the price generated by the third-party falls outside specified statistical norms and after review BlackRock determines that such price is not reliable, BlackRock will value the security using an analytic methodology in accordance with its written valuation policy. If BlackRock values a security using such analytic methodology, the Independent Fiduciary will review that methodology and valuation and will obtain its own valuation if it deems appropriate; and (5) Values determined in accordance with (1) through (4) above will be provided to each financial institution that has entered into a wrap agreement covering assets in the Global Wrap Account or the Global Buy and Hold Account, as the case may be; (g) Each financial institution that has entered into a wrap agreement covering assets in the Global Wrap Account and/or the Global Buy and Hold Account, including BANA, may raise an objection regarding a particular security's valuation, regardless of the source of such valuation. Once an objection is raised, wrap providers other than BANA may determine a new valuation for such security and BANA must accept this new valuation, provided that BANA is given reasonably satisfactory documentation supporting the new valuation; (h) Prior to a Plan sponsor's decision to include RPT as an investment option for its Plan's participants, the Trustee will provide the Plan sponsor with the following: (1) RPT's Declaration of Trust (as amended and restated as of April 23, 2009, and as may be further amended from time to time); (2) A purchase agreement to be entered into by the Plan fiduciary and the Trustee; (3) Upon request, a copy of the Annual Report for RPT and a fact sheet describing RPT's investment objective and strategy and a performance analysis; and (4) A copy of this proposed exemption or, if granted, a copy of the final exemption; (i) The Trustee will provide the following ongoing disclosures to Plan fiduciaries regarding a Plan's investment in RPT: (1) The Annual Report for RPT; and (2) The Plan's Investment Summary and Accounting; (j) Plan participants will be provided the following disclosures regarding their investment in RPT: (1) Prior to and following their initial investment, information describing the investment objectives and performance of RPT; and (2) A statement, delivered at least quarterly, that sets forth the value of the participant's account contributions, withdrawals, distributions, loans and change in value since the prior statement; (k) The Independent Fiduciary must receive a copy of any RPT Stable Value Agreement amendment prior to the effective date of such amendment. The Independent Fiduciary must review and approve the amendment prior to its implementation, except that no such review and approval shall be required for an amendment that is purely ministerial in nature; (l) The dollar amount of Global Wrap Account assets covered by the BANA RPT Global Wrap Agreement shall not exceed 50% of the total assets held in such Account, and the terms associated with the BANA RPT Global Wrap Agreement at the time such Agreement was entered into, amended, modified or renewed shall be no less favorable to RPT than the terms associated with comparable agreements with unrelated parties; (m) The dollar amount of Global Buy and Hold Account assets covered by the BANA RPT Buy and Hold Wrap Agreement shall not exceed 60% of the total assets held in such Account, and the terms associated with the BANA RPT Buy and Hold Wrap Agreement at the time such Agreement was entered into, amended, modified or renewed shall be no less favorable to RPT than the terms associated with comparable agreements with unrelated parties; and (n) Any RPT Wrap-Related Transaction that involves: (1) the exercise by BANA, the Trustee, or BlackRock Advisors of their rights under the RPT Stable Value Agreements; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under the RPT Stable Value Agreements, shall be subject to prior review and approval by the Independent Fiduciary if such exercise or performance affects the Crediting Rate or would otherwise have an adverse impact on the book value of a participant's or beneficiary's investment in RPT. Section III. Conditions Applicable to Transactions Described in Section I(b) (a) Below Investment Grade Securities will be transferred automatically to a RPT account (the Type D1 Account) and covered by the RPT Special Purpose Wrap Agreement. The RPT Special Purpose Wrap Agreement shall cover up to in the aggregate $200 million of the following: (1) Book value of Downgraded Securities that have not been sold; and/or (2) Aggregate unamortized realized losses with respect to sold Downgraded Securities; (b) The Minimum Ratio shall be maintained; (c) The total book value of the assets included in the Type D1 Account and covered by the RPT Special Purpose Wrap, including the Permitted Securities, will not exceed $700 million without the prior written consent of the Trustee, BlackRock Advisors, BANA and the Independent Fiduciary; (d) The crediting rate with respect to the Type D1 Account (the Type D1 Account Crediting Rate) shall be 0.00% at times when there are unamortized losses (whether realized or unrealized) attributable to Downgraded Securities in the Type D1 Account, calculated in accordance with the provisions of the RPT Special Purpose Wrap Agreement. In the event there are no unamortized losses ( i.e., neither realized nor unrealized) recorded to the Type D1 Account which relate to Downgraded Securities, the Type D1 Account Crediting Rate shall be determined in accordance with a formula that has been reviewed by the Independent Fiduciary; (e) Effective June 1, 2009, BlackRock Advisors may change the formula for calculating the Type D1 Account Crediting Rate only after obtaining prior approval from BANA and the Independent Fiduciary. BlackRock Advisors shall provide the Independent Fiduciary with any information it may reasonably request in determining whether to approve a proposed change in the Type D1 Account Crediting Rate formula; (f) The Type D1 Account Crediting Rate will not be reset more frequently than on a monthly basis; (g) Permitted Securities will have a maximum duration of 3.5 years at the time of purchase; (h) The fee charged by BANA for the RPT Special Purpose Wrap will be reasonable relative to market conditions and risks, as determined annually by the Independent Fiduciary. Notwithstanding the above, in no event shall the fee received by BANA under the BANA RPT Global Wrap Agreement or the BANA RPT Buy and Hold Wrap Agreement exceed the maximum percentage fee paid to any other financial institution pursuant to a wrap agreement covering assets in the applicable Global Wrap Account or the Global Buy and Hold Account, as relevant, as determined annually by the Independent Fiduciary. Notwithstanding the above, in no event shall such fee exceed 15 basis points per annum of the total book value of assets included in the Type D1 Account; (i) Assets covered by the RPT Special Purpose Wrap Agreement will be valued in accordance with the methodology specified in section II(f) above, provided, however, that if the Independent Fiduciary obtains a valuation, such valuation will be binding on BANA; (j) The Trustee has the right to immunize the portfolio of securities included in the Type D1 Account only if BANA elects to terminate the RPT Special Purpose Wrap Agreement, or if BANA defaults under the RPT Special Purpose Wrap Agreement. If an immunization election becomes effective (the RPT Special Purpose Immunization Date), the RPT Special Purpose Wrap Agreement would terminate on the later of: (1) The date that is the number of years after the RPT Special Purpose Immunization Date which does not extend beyond the modified duration (as defined in the RPT Special Purpose Wrap Agreement) of the underlying assets on the RPT Special Purpose Immunization Date; or (2) the first date on which the market value of the underlying assets equals or exceeds the book value under the wrap agreement; (k) No Below Investment Grade Securities will be added to the RPT Special Purpose Wrap Agreement after April 23, 2011, unless otherwise agreed by BANA, the Trustee, and the Independent Fiduciary. No party to the RPT Special Purpose Wrap Agreement is obligated to amend or extend the RPT Special Purpose Wrap Agreement; (l) The tasks performed by the Independent Fiduciary will include: (1) Determining whether the RPT Special Purpose Wrap Agreement and the portfolio arrangement for the Type D1 Account (including the wrap fee payable to BANA, the Minimum Ratio, the prefunding of the RPT Special Purpose Wrap Agreement and the formula for resetting the Type D1 Account Crediting Rate) are prudent and in the best interest of participants and beneficiaries of Plans investing in RPT; (2) Reviewing valuations generated by BlackRock (in connection with the RPT Special Purpose Wrap Agreement) in any situation where BlackRock is unable to obtain a reliable valuation from independent third party sources. If, after such review, the Independent Fiduciary deems appropriate, the Independent Fiduciary will obtain an independent valuation which will be binding on the parties; (3) Reviewing and monitoring whether the Type D1 Account Crediting Rate is calculated correctly; (4) Monitoring the addition and removal of Below Investment Grade Securities and any changes in Permitted Securities in the Type D1 Account, and opining, in a written report, whether such addition, removal or change is appropriate; (5) If BANA objects to the calculation by the Trustee or its designee of the Type D1 Account Crediting Rate or the information used to calculate the Type D1 Account Crediting Rate, the Independent Fiduciary will make a conclusive and binding determination regarding such calculation or information; (6) Determining whether to approve any proposed change to the Type D1 Account Crediting Rate formula, including any proposed adjustment to the duration component of the Type D1 Account Crediting Rate formula; (7) No later than April 30, 2011, working with BANA, BlackRock, and the Trustee to review and determine whether additional Below Investment Grade Securities may be transferred to the Type D1 Account and be covered by the RPT Special Purpose Wrap Agreement; (8) Making an initial and, thereafter, annual determination regarding whether the fee described in paragraph (h) of this section is reasonable relative to the specific attributes of the RPT Special Purpose Wrap Agreement; (9) Making an annual determination regarding whether the continued maintenance of the RPT Special Purpose Wrap Agreement is appropriate and in the interest of Plans; (10) Making a monthly determination regarding whether the appropriate Type D1 Crediting Rate formula is being used; and (11) Reviewing and approving any amendment to a RPT Special Purpose Wrap Agreement consistent with paragraph (n) of this section; (m) Any Special Purpose Wrap-Related Transaction that involves: (1) The exercise by BANA, the Trustee, or BlackRock Advisors of their rights under the RPT Special Purpose Wrap Agreement; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under the RPT Special Purpose Wrap Agreement, shall be subject to prior review and approval by the Independent Fiduciary if such exercise or performance affects the Type D1 Crediting Rate or otherwise would have an adverse impact on the book value of a participant's or beneficiary's investment in RPT; and (n) The Independent Fiduciary must receive a copy of any RPT Special Purpose Wrap Agreement amendment prior to the effective date of such amendment. The Independent Fiduciary must review and approve the amendment prior to its implementation, except that no such review and approval shall be required for an amendment that is purely ministerial in nature. Section IV. Conditions Applicable to Transactions Described in Section I(c) (a) Effective June 1, 2009, BlackRock Advisors may change the formula for calculating the Crediting Rate with respect to each Separately Managed Account Wrap Agreement only after obtaining prior approval from BANA and the Independent Fiduciary. BlackRock Advisors shall provide the Independent Fiduciary with any information it may reasonably request in determining whether to approve a proposed change in the Crediting Rate formula; (b) Effective June 1, 2009, the Crediting Rate will be reset no more frequently than on a monthly basis; (c) BANA will not receive a fee under the BANA Wal-Mart Separately Managed Wrap Agreement in excess of the maximum percentage fee received by any other Tier 3 Wrap Provider in the Wal-Mart Separately Managed Account; and BANA will not receive a fee under the BANA Hertz Separately Managed Wrap Agreement in excess of the maximum percentage fee received by any other financial institution that has entered into a wrap agreement covering assets in the Hertz Separately Managed Account; (d) Assets covered under each Separately Managed Account Wrap Agreement will be valued in accordance with the same methodology specified in section II(f) above; provided, however, that if BANA objects to the valuation of any asset, the Independent Fiduciary will make a binding determination of the value of the asset; (e) The tasks performed by the Independent Fiduciary will include: (1) Conducting a monthly review of the Crediting Rate, including, confirming: (A) The book value of the portfolio of assets wrapped by each Separately Managed Account Wrap Agreement; (B) the valuation of securities; (C) the duration of securities; (D) the market yield of securities; and (E) that the Crediting Rate formula was calculated properly; (2) Reviewing and approving any proposed amendment to a Separately Managed Wrap Agreement consistent with paragraph (i) below; (3) Reviewing any exercise of contract provisions by any of BANA, BlackRock Advisors or, in the case of the BANA Wal-Mart Separately Managed Wrap Agreement, the Trustee, and analyze its potential impact on investors; (4) Evaluating any changes to the fees paid to BANA under each Separately Managed Account Wrap Agreement to determine reasonableness relative to market conditions and risks; and (5) Providing quarterly reports to BlackRock Advisors and to the named fiduciaries of the Wal-Mart Plan and the Hertz Plan. These reports must certify that the Independent Fiduciary has reviewed the factors described above and state whether BlackRock Advisors has complied with all requirements of the contract. The Independent Fiduciary will inform the named fiduciaries of a Plan if it believes that BANA or BlackRock Advisors has taken any actions that are not in the best interests of the participants and beneficiaries in the Wal-Mart Plan or the Hertz Plan, as relevant; (f) The Separately Managed Account Wrap Agreements shall authorize the Independent Fiduciary to: (1) Review and approve any proposed changes in the formula for calculating the Crediting Rate, prior to implementation of any such change; (2) If BlackRock Advisors generates its own valuation, review the valuation, and if the Independent Fiduciary deems appropriate, obtain an independent valuation, which shall be binding on the parties, subject to BANA's right to raise an objection to any valuation; (3) If BANA objects to the valuation of any asset, make a binding determination of the value of the asset; (g) The named fiduciaries (or their authorized representatives) for the Wal-Mart Plan have the right to terminate BlackRock Advisors, as investment manager for the Wal-Mart Separately Managed Account, on 90 days' written notice. The named fiduciaries (or their authorized representatives) for the Hertz Plan have the right to terminate B1ackRock Advisors as investment manager for the Hertz Separately Managed Account, on 30 days' written notice; (h) Any Separately Managed Account Wrap-Related Transaction that involves: (1) The exercise by BANA, the Trustee, or BlackRock Advisors of their rights under a Separately Managed Account Wrap Agreement; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under a Separately Managed Wrap Agreement: shall be subject to prior review and approval by the Independent Fiduciary if such exercise or performance affects the Crediting Rate or otherwise would have an adverse impact on the book value of a participant's or beneficiary's investment in RPT; (i) The Independent Fiduciary must receive a copy of any amendment contemplated for a Separately Managed Wrap Agreement. The Independent Fiduciary must review and approve the amendment prior to its implementation, except that no such review and approval shall be required for an amendment that is purely ministerial in nature; and (j) BlackRock may not terminate a Separately Managed Account Wrap Agreement without the prior approval of the Independent Fiduciary. Section V. General Conditions (a) BlackRock Advisors shall maintain in the United States the records necessary to enable the persons described in (b) below to determine whether the conditions of this exemption, if granted, were met, except that: (1) If the records necessary to enable the persons described in (b) below to determine whether the conditions of the exemption have been met are lost or destroyed, due to circumstances beyond the control of BlackRock Advisors, then no prohibited transaction will be considered to have occurred solely on the basis of the unavailability of those records; and (2) No party in interest other than BlackRock Advisors shall be subject to the civil penalty that may be assessed under section 502(i) of the Act or to the taxes imposed by sections 4975(a) and (b) of the Code if the records have not been maintained or are not available for examination as required by paragraph (b) below; (b) Except as provided in paragraph (c) of this section V and notwithstanding the provisions of subsections (a)(2) and (b) of section 504 of the Act, the records referred to in section V(a) are unconditionally available for examination during normal business hours at their customary location to the following persons or an authorized representative thereof: (1) Any duly authorized employee or representative of the Department or the Internal Revenue Service; (2) Any fiduciary of a Plan participating in RPT or the Hertz Plan or the Wal-Mart Plan; (3) Any participant or beneficiary of a Plan participating in RPT or the Hertz Plan or the Wal-Mart Plan; or (4) The Independent Fiduciary. (c) None of the persons described above in paragraphs (2), (3), and (4) of paragraph (b) of this section V shall be authorized to examine trade secrets of BlackRock, BANA, the Trustee or any of their Affiliates, or any commercial or financial information which is privileged or confidential. Should BlackRock Advisors refuse to disclose information on the basis that such information is exempt from disclosure, BlackRock Advisors shall, by the close of the thirtieth (30th) day following the request, provide written notice advising that person of the reason for the refusal and that the Department may request such information; and (d) Promptly following any publication of a final exemption in the Federal Register , the Trustee or BlackRock Advisors will provide a copy of the final exemption to the Plan sponsor of each Plan invested in RPT, and to the Plan sponsor of the Hertz Plan, and to the Plan sponsor of the Wal-Mart Plan. Section VI. Definitions (a) The term Act means: The Employee Retirement Income Security Act of 1974, as amended; (b) The term Affiliate means: Any person, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with such person; (c) The term BANA means: Bank of America, N.A. and its Affiliates; (d) The term BANA Hertz Separately Managed Wrap Agreement means: The agreement dated as of July 27, 2007 (and amended effective as of December 31, 2008) among BANA, BlackRock Advisors (as investment manager for a portion of the assets of the Hertz Plan), and the Bank of New York Mellon (the successor by operation of law to Mellon Bank N.A., and the trustee of the trust created pursuant to the Hertz Plan), as such agreement may be amended from time to time, pursuant to which BANA provides a book value benefit responsive facility with respect to a portion of the assets held in the Hertz Separately Managed Account; (e) The term BANA RPT Buy and Hold Wrap Agreement means: The agreement dated as of October 16, 1996, between Barclays Bank PLC and the Trustee (as assigned to BANA as of April 1, 1998, and amended effective as of December 31, 2008), as such agreement may be amended from time to time, pursuant to which BANA provides a book value benefit responsive facility with respect to an undivided portion of the assets held in the Global Buy and Hold Account; (f) The term BANA RPT Global Wrap Agreement means: The agreement dated as of May 1, 2004 (and amended effective as of December 31, 2008) between BANA and the Trustee, as such agreement may be amended from time to time, pursuant to which BANA provides a book value benefit responsive facility with respect to an undivided portion of the assets held in the Global Wrap Account; (g) The term BANA Wal-Mart Separately Managed Wrap Agreement means: The agreement dated as of August 19, 2003 (and amended effective as of December 31, 2008) between BANA and the Trustee, as such agreement may be amended from time to time, pursuant to which BANA provides a book value benefit responsive facility with respect to a portion of the assets held in the Wal-Mart Separately Managed Account; (h) The term Below Investment Grade Security means: Securities that cease to be covered by a benefit responsive contract in RPT (other than by the RPT Special Purpose Wrap Agreement) solely as a result of a downgrade in the credit rating of the security to below Baa3, BBB- or BBB- by Moody's Investors Services, Inc., Standard & Poor's Rating Group, or Fitch Ratings, respectively; provided, however, that a Below Investment Grade Security shall not include any security that is an Impaired Security; (i) The term BlackRock means: BlackRock, Inc.; (j) The term BlackRock Advisors means: BlackRock Investment Management, LLC and its Affiliates; (k) The term Code means: The Internal Revenue Code of 1986, as amended; (l) The term Crediting Rate means: The crediting rate described in sections II and IV that is used for purposes of determining the accrued interest to be added to the book value of an individual's account within RPT or the Separately Managed Accounts; (m) The term Downgraded Security means: A Below Grade Investment Security that is held in the Type D1 Account and covered by the RPT Special Purpose Wrap Agreement; (n) The term Global Buy and Hold Account means: The book account or sub-account maintained within RPT for purposes of identifying certain assets relating to the BANA RPT Buy and Hold Wrap Agreement; (o) The term Global Wrap Account means: The book account or sub-account maintained within RPT for purposes of identifying certain assets relating to the BANA RPT Global Wrap Agreement; (p) The term Hertz Plan means: The Hertz Corporation Income Savings Plan; (q) The term Hertz Separately Managed Account means: The separately managed stable value account advised by BlackRock Advisors on behalf of the Hertz Plan; (r) The term Impaired Security means: (i) A security with respect to which the issuer or guarantor has failed to make one or more payments of principal or interest (after giving effect to any applicable grace period under the terms of such security or prescribed by any change in law, regulation, ruling or other governmental action); (ii) a security with respect to which the principal or interest has become due and payable before it otherwise would have been due or payable other than: (x) By reason of a call or other prepayment of such security made in accordance with its terms that does not constitute a default under such security, or (y) solely on account of any change in law, regulation, ruling or other governmental action; (iii) a security where the rate of interest thereon has been reset other than: (x) Pursuant to the original terms of such security, or (y) solely on account of any change in law, regulation, ruling or other governmental action; or (iv) a security with respect to which the issuer becomes insolvent or institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditor's rights; (s) The term Independent Fiduciary means an entity that is: (1) Experienced and knowledgeable in ERISA and the transactions and arrangements described herein; (ii) independent of and unrelated to BANA, Merrill, BlackRock, and their Affiliates; and (iii) appointed to act on behalf of Plans investing in RPT or the Separately Managed Accounts with respect to the matters described herein. The Independent Fiduciary will not be deemed to be independent of and unrelated to BANA, Merrill, BlackRock, and their Affiliates if: (i) Such fiduciary directly or indirectly controls, is controlled by or is under common control with BANA, Merrill, or BlackRock; (ii) such fiduciary directly or indirectly receives any compensation or other consideration in connection with any transaction described in this exemption, if granted, other than for acting as an Independent Fiduciary in connection with the transactions described herein, provided that the amount or payment of such compensation is not contingent upon, or in any way affected by, the Independent Fiduciary's ultimate decision; and (iii) the annual gross revenue received by the Independent Fiduciary, during any year of its engagement, from BANA, Merrill, BlackRock, and any of their Affiliates, exceeds five percent (5%) of the Independent Fiduciary's annual gross revenue from all sources (for federal income tax purposes) for its prior tax year; (t) The term Minimum Ratio means: A ratio of 2.5 to 1.0 of market value of Permitted Securities to the total unamortized unrealized and realized losses with respect to Downgraded Securities; (u) The term Permitted Securities means any security that: (i) Is a U.S. Treasury debenture, a security issued by the Government National Mortgage Association or a security guaranteed by the Federal Deposit Insurance Corporation; and (ii) has a modified duration on the date of purchase by RPT of 3.5 years or less; (v) The term Plan means: An employee benefit plan within the meaning of and subject to Title I of the Act or an individual retirement account within the meaning of section 4975 of the Code; (w) The term RPT means: The Merrill Lynch Retirement Preservation Trust maintained by the Trustee; (x) The term RPT Special Purpose Wrap Agreement means: The agreement dated as of April 23, 2009, as amended, between BANA and the Trustee, pursuant to which BANA provides a book value benefit responsive facility with respect to an undivided portion of the assets held in the Type D1 Account; (y) The term RPT Stable Value Agreements means: The BANA RPT Global Wrap Agreement and the BANA RPT Buy and Hold Wrap Agreement; (z) The term Separately Managed Accounts means: The Hertz Separately Managed Account and the Wal-Mart Separately Managed Account; (aa) The term Separately Managed Account Wrap Agreements means: The BANA Wal-Mart Separately Managed Wrap Agreement and the BANA Hertz Separately Managed Wrap Agreement; (bb) The term Type D1 Account means: The book account maintained within RPT for purposes of identifying Downgraded Securities, including unamortized losses with respect to Downgraded Securities that have been sold, and Permitted Securities covered by the RPT Special Purpose Wrap Agreement; (cc) The term Tier 3 Wrap Provider means: A financial institution that has entered into a wrap agreement with respect to assets held in the Wal-Mart Separately Managed Account that will not be accessed for purposes of making benefit payments until after two tiers of buffer assets are accessed; (dd) The term Trustee means: Bank of America, N.A.; (ee) The term Wal-Mart Plan means: The Wal-Mart Profit Sharing and 401(k) Plan and the Wal-Mart Puerto Rico Profit Sharing and 401(k) Plan; (ff) The term Wal-Mart Separately Managed Account means: The separately managed stable value account advised by BlackRock Advisors on behalf of the Wal-Mart Plan; (gg) The term Merrill means: Merrill Lynch & Co., Inc. and its Affiliates; (hh) The term RPT Wrap-Related Transaction means: (1) The determination, calculation of and adjustments to the Crediting Rate, and any changes to the Crediting Rate formula; (2) valuations of securities covered by the BANA RPT Stable Value Agreements; (3) payment of wrap fees and any changes to wrap fees; (4) the purchase and sale of any security covered by the RPT Stable Value Agreements; (5) BANA's or the Trustee's exercise of its right to immunize or terminate the RPT Stable Value Agreements; (6) amendments to the RPT Stable Value Agreements; and (7) any other exercise by BANA, the Trustee, or BlackRock Advisors of their rights, or any performance by BANA, the Trustee, or BlackRock of their obligations, under the Stable Value Agreements; (ii) The term Special Purpose Wrap-Related Transaction means: (1) The transfer of Below Investment Grade Securities to the Type D1 Account; (2) the sale or transfer of Downgraded Securities out of the Type D1 Account; (3) the purchase and sale of certain other securities permitted to be held in the Type D1 Account; (4) transactions relating to maintenance of a minimum ratio of Permitted Securities and Downgraded Securities; (5) the determination, calculation of and adjustments to the Type D1 Account Crediting Rate and any changes to the Type D1 Account Crediting Rate formula; (6) valuations of securities covered by the RPT Special Purpose Wrap Agreement; (7) payment of and any changes to wrap fees; (8) BANA's or the Trustee's exercise of its right to immunize or terminate the RPT Special Purpose Wrap Agreement; (9) the entering into and amendment of the RPT Special Purpose Wrap Agreement; and (10) any exercise by BANA, the Trustee, or BlackRock Advisors of their rights, or any performance by BANA, the Trustee, or BlackRock of their obligations, under the RPT Special Purpose Wrap Agreement; (jj) The term Separately Managed Account Wrap-Related Transaction means: (1) The determination, calculation of and adjustments to the Crediting Rate, and any changes to the Crediting Rate formula; (2) valuations of securities covered by the Separately Managed Account Wrap Agreements; (3) payment of wrap fees and any changes to wrap fees; (4) the purchase and sale of any security covered by the Separately Managed Account Wrap Agreements; (5) BANA's or the Trustee's exercise of its right to terminate the Separately Managed Wrap Agreements; (6) amendments to the Separately Managed Wrap Agreements; and (7) any other exercise by BANA, the Trustee, or BlackRock Advisors of their rights, or any performance by BANA, the Trustee, or BlackRock of their obligations, under the Separately Managed Wrap Agreements. Summary of Facts and Representations 1. Applicants A. Bank of America, NA (BANA). BANA is a wholly-owned indirect subsidiary of Bank of America Corporation (BAC). BANA is engaged in a general consumer banking, commercial banking and trust business, offering a wide range of commercial, corporate, international, financial market, retail and fiduciary banking services. B. Merrill Lynch & Co., Inc. (Merrill). Merrill is a holding company that, through its affiliates, provides broker-dealer, investment banking, financing, advisory, wealth management, insurance, lending and related products and services. Merrill's subsidiaries included Merrill Lynch Bank & Trust Co., FSB (MLTC). MLTC merged into BANA during the fourth quarter of 2009. C. BlackRock, Inc. (BlackRock). BlackRock is an investment management firm that, as of December 31, 2008, had approximately $1.307 trillion in assets under management. D. Merrill/BAC Merger. On September 15, 2008, BAC and Merrill entered into an agreement and plan of merger pursuant to which, effective as of the closing of the transactions contemplated thereby, a new, wholly-owned subsidiary of BAC merged with and into Merrill (the Merrill/BAC Merger). The Merrill/BAC Merger closed on January 1, 2009, at which time Merrill became a wholly-owned subsidiary of BAC and an affiliate of BANA. E. Merrill/BlackRock Transaction. On September 29, 2006, Merrill contributed Merrill Lynch Investment Managers, LLC and various other assets and subsidiaries that comprised its investment management business to BlackRock. As a result of that transaction (the Merrill/BlackRock Transaction), from September 29, 2006, though December 26, 2008, Merrill held an approximate 49% ownership interest in BlackRock and held 45% of the outstanding voting securities of BlackRock. Pursuant to an exchange agreement between Merrill and BlackRock, dated as of December 26, 2008, Merrill reduced its voting interest in BlackRock to 4.9%. However, Merrill retained an approximate 49.5% equity interest in BlackRock. F. BlackRock/Barclays Acquisition. On December 1, 2009, BlackRock acquired Barclays Global Investors. As part of this transaction, Merrill Lynch's economic ownership of BlackRock was reduced to 34.2%. Merrill Lynch currently has a 3.4% voting interest in BlackRock. 2. The Application The application submitted by the Applicants includes the following: An overview of stable value funds; a description of the Retirement Preservation Trust (RPT) stable value fund; a request for retroactive and prospective exemptive relief for the operation of, and certain transactions under, two stable value wrap agreements entered into between MLTC and BANA with respect to certain assets of the RPT; a request for retroactive and prospective exemptive relief for the execution and operation of, and certain transactions under, a “special purpose” wrap agreement entered into between MLTC and BANA with respect to certain assets of RPT; a request for retroactive and prospective exemptive relief for the operation of and transactions under two stable value wrap agreements entered into by BANA with respect to single plan separately managed accounts advised by BlackRock Advisers, a BlackRock affiliate, on behalf of the Hertz Plan and the Wal-Mart Plan; and numerous representations by Fiduciary Counselors Inc., who is currently the independent fiduciary (the Independent Fiduciary) responsible for representing the interests of the Hertz Plan, the Wal-Mart Plan, and employee benefit plans (Plans) investing in RPT for purposes of the transactions described in this proposed exemption, if granted. Paragraphs 3-9. Applicants' Overview of Stable Value Funds 3. Stable value funds are intended as conservative investment options that provide preservation of principal, liquidity and current income at levels that are typically higher than those provided by money market funds. To achieve this objective, stable value funds invest in traditional and synthetic guaranteed investment contracts (GICs). A traditional GIC is an investment contract that guarantees payments on deposits at a specified rate and is typically purchased through an insurance company. In a synthetic GIC structure, the plan or plan asset fund retains title to an underlying portfolio of fixed income assets and purchases a “wrap agreement” from a bank, insurance company or other financial institution. Synthetic GICs permit diversification away from the credit risk of an insurance company and provide an opportunity to achieve higher returns through an actively managed portfolio. 4. Under the terms of standard wrap agreements, the wrap provider agrees that payments to participants upon retirement, death, disability, employment termination, hardship or transfer to a non-competing investment alternative (generally referred to as “benefit responsive payments”) will be made based on “book value,” regardless of fluctuations in the market value of the underlying portfolio of assets. Book value generally represents the value of deposits ( i.e., the principal amount invested) plus interest (accumulated at a “credited rate”) minus withdrawals and minus adjustments for assets that become impaired. 2 This provision of book value accounting at the participant level is the core feature of a stable value fund. However, not all payments to participants are made at book value. For example, withdrawals arising from a plan's decision to transfer to a competing investment alternative, or certain actions initiated by a plan sponsor, may be paid at market value, which could be less than book value depending on the performance of the underlying investment portfolio. 2 The Applicants describe an impaired security as including a security with respect to which the issuer or guarantor has failed to make one or more payments of principal or interest. 5. A wrap agreement does not guarantee that the book value of the wrapped assets will increase by a specified rate of return. Rather, interest is credited to the underlying portfolio based on a formula that is designed to equal the actual total rate of return on the underlying portfolio over time, while smoothing the gains and losses. To achieve this smoothing, the difference between the market value of the underlying portfolio and the book value of the underlying portfolio is amortized through periodic adjustments to the rate at which interest is credited to the book value of the underlying portfolio. The rate at which interest is credited is determined by means of a formula (the crediting rate formula) which takes into account the yield to maturity and the duration of the underlying portfolio as well as the ratio of the market value of the underlying portfolio to the book value. 6. Stable value funds generally include: (1) a liquidity fund that may or may not be covered by a wrap agreement; and (2) multiple portfolios of assets, each covered by a different wrap agreement. The wrap agreements include rules establishing the priority for obtaining cash for withdrawals from the assets included in the stable value fund. Generally, these rules require that withdrawals be first met from new cash and then from the liquidity fund. Once these sources are exhausted, withdrawals are funded by selling securities in wrapped portfolios. Thus, for example, in the event there are significant participant withdrawals during a bond-market downturn (an environment in which there could be a significant difference between the wrap contract book value and the market value of the wrapped assets) the stable value fund would first access liquid assets in the fund in an attempt to make book value payments. Once those are exhausted, wrapped assets would be sold in a pre-specified order to provide liquidity needed to make book value payments. If all of the assets covered by a particular wrap contract were sold, and if the proceeds were insufficient to meet the book value payment, the wrap provider would pay the difference between the sale proceeds and the book value under the wrap contract before securities in the next lower tier would be sold to fund withdrawals. 7. Wrap agreements can generally be terminated by either party ( i.e., the trustee of the stable value fund or the wrap provider) at market value. However, most wrap agreements have immunization provisions whereby if the wrap agreement is terminated: (1) More conservative investment guidelines ( i.e., more conservative than the guidelines in effect before the immunization) will apply to the underlying portfolio; and (2) the wrap provider will continue to provide book value coverage until a date that is generally determined by reference to the underlying portfolio. If wrap contracts were terminable by the wrap provider on short notice at a time when the market value of the wrapped assets was below the wrapped contract book value, and another wrap provider could not be found as a substitute, the unwrapped assets would be immediately revalued down to their fair market value. Immunization is a “middle ground,” and provides a means of winding down and terminating a contract that otherwise would be “evergreen.” Immunization effectively permits an open-ended contract to be converted to a contract with a deferred termination date. During the immunization period, the wrapped contract continues to be “benefit responsive” and investors continue to receive payments at book value. 8. Fees for wrap agreements are generally based on a percentage of the book value of assets covered by a wrap agreement. The fee is frequently paid from the assets of the Plan or Plan asset fund. The amount of the fee will vary depending upon the risk taken and the market conditions when the wrap agreement is negotiated. Since book value payments generally could occur when investments are moved to another non-competing investment option, when retirees or other inactive participants withdraw money from a plan and when participants take in-service withdrawals, book value payments are neither predictable nor controllable by the wrap provider. Notwithstanding that wrap contracts are structured in a manner that is intended to mitigate the risk of higher than expected or untimely participant withdrawals, the risk remains greater than zero. Fees for wrap agreements would be significantly higher if the wrap provider guaranteed the actual performance of the assets wrapped in circumstances beyond those described above. 9. In the current distressed economic climate, the number of financial institutions that are willing to enter into wrap agreements has declined. To the extent wrap coverage can be obtained, the fees for providing such coverage have significantly increased from the fees generally available during the past ten years. Paragraphs 10-22. Applicants' Description of RPT 10. RPT is a “stable value” fund with approximately $11.7 billion book value of assets as of December 31, 2008. Payments to participants (or beneficiaries) upon retirement, death, disability, employment termination, hardship or transfer to a non-competing investment alternative are generally based on book value, such that a participant in RPT will receive his invested principal and interest at a crediting rate, as described in further detail below, even if the actual market value of the underlying assets is less. 11. Bank of America, N.A. (hereinafter, either BANA or the Trustee) is the trustee of RPT. BlackRock Advisers, a wholly-owned subsidiary of BlackRock, is an investment adviser to RPT. The assets of RPT are divided into several portfolios, which include an actively managed portfolio with approximately $2.8 billion book value of assets (the Actively Managed Account) and a buy and hold portfolio with approximately $1.6 billion book value of assets (the Global Buy and Hold Account). 12. In connection with the operation of RPT, the Trustee has entered into stable value wrap agreements with banks and other financial institutions to provide benefit responsive facilities with respect to certain assets of RPT. BANA is one of several financial institutions that have entered into stable value wrap agreements with the Trustee under RPT. In this regard, prior to the Merrill/BAC Merger, BANA had entered into two separate wrap agreements with the Trustee under RPT. One agreement, dated May 1, 2004, provides a benefit responsive facility with respect to the Actively Managed Account (the BANA RPT Global Wrap Agreement). The other agreement, dated October 16, 1996 (assigned by Barclays Bank PLC to BANA effective April 1, 1998, and amended effective as of December 31, 2008), provides a benefit responsive facility with respect to the Global Buy and Hold Account (the BANA RPT Buy and Hold Wrap Agreement). 13. The BANA RPT Global Wrap Agreement is one of four wrap agreements covering assets in a global wrap account (the Global Wrap Account). The Global Wrap Account represents approximately 24% of the total book value of the assets of RPT. The assets in the Global Wrap Account are actively managed. Under this wrap agreement, which RPT and BANA entered into prior to the Merrill/BAC Merger, BANA provide benefit responsive coverage for approximately 27% of the book value of the assets credited to the Global Wrap Account. Banks and financial institutions unaffiliated with BANA have entered into wrap agreements with the Trustee providing coverage for approximately 73% of the book value of the assets in the Global Wrap Account. The assets in the Global Wrap Account covered by the BANA RPT Global Wrap Agreement are not segregated from the assets in the Global Wrap Account covered by the other wrap agreements. Each wrap agreement covers a specified percentage of the book value of the assets in the Global Wrap Account as a whole. In this regard, the BANA RPT Global Wrap Agreement provides a benefit responsive wrap with respect to approximately 5.5% of the total book value of the assets of RPT. 14. Under the BANA RPT Buy and Hold Wrap Agreement, prior to December 31, 2008, BANA provided a benefit responsive facility with respect to a segregated “buy and hold” portfolio of assets of RPT, with no other wrap provider providing a benefit responsive facility with respect to this portfolio. Effective as of December 31, 2008, the Applicants amended the BANA RPT Buy and Hold Wrap Agreement in a manner that: (a) Combined the “buy and hold” portfolio covered by the BANA RPT Buy and Hold Wrap Agreement with a portfolio of assets of RPT covered by a “buy and hold” benefit responsive wrap agreement between the Trustee and another unaffiliated wrap provider (Global Buy and Hold Wrap Provider 2) to form the Global Buy and Hold Account; and (b) provides that BANA will provide coverage for 50% of the book value of the assets held in the Global Buy and Hold Account. Global Buy and Hold Wrap Provider 2's wrap agreement with the Trustee was amended similarly to provide that it will provide coverage for 50% of the book value of the assets held in the Global Buy and Hold Account. As is the case with the BANA RPT Global Wrap Agreement, the assets in the Global Buy and Hold Account covered by the BANA RPT Buy and Hold Wrap Agreement are not segregated from the assets in the Global Buy and Hold Account covered by the other wrap agreement. Each wrap agreement covers a specified percentage of the book value of the assets in the Global Buy and Hold Account as a whole. The Global Buy and Hold Account as a whole represents approximately 13.6% of the book value of the assets of RPT, and the BANA RPT Buy and Hold Wrap Agreement provides a benefit responsive wrap with respect to approximately 6.8% of the total book value of the assets of RPT. 3 3 The Applicants represent that the conversion of the BANA RPT Buy and Hold Wrap Agreement into a “global” arrangement will not affect the Crediting Rate (referenced above and described in further detail below) applicable to a participant's account in RPT. In this regard, the Applicants state that the conversion involved a purely internal adjustment, based upon an objective mathematical formula, among BANA and the other wrap provider to reflect the different market to book ratios of assets wrapped by BANA and Global Buy and Hold Wrap Provider 2 at the time of conversion into the Global Buy and Hold Account. The Applicants represent that this adjustment is relevant only if the wrap contracts must be accessed to make benefit responsive payments and will have no effect on the participants. 15. The BANA RPT Global Wrap Agreement and the BANA RPT Buy and Hold Wrap Agreement (the RPT Stable Value Agreements) provide for “buffer” assets that would be liquidated to fund withdrawals from RPT before the assets held under the Global Wrap Account or the Global Buy and Hold Account are used to fund withdrawals. Under the RPT Stable Value Agreements, liquidity requirements for withdrawals would be satisfied in the following order: (1) Netting withdrawals from deposits whenever possible; (2) Simple interest payments and maturing proceeds; (3) Type “A” assets which include money market and other short-term investments as well as any short-term benefit responsive floaters; (4) Type “B” buffer contracts, which will generally be accessed on a pro rata basis; (5) Level “C” contracts on a pro rata basis; and (6) Level “D” contracts. The RPT Stable Value Agreements cover Level C assets which, subject to a limited temporary exception for certain Plan level withdrawals from RPT, will not be accessed until assets in a higher category have all been accessed. 4 A minimum of 8% of RPT's assets must be held as Type A and Type B combined. As of June 10, 2009, Type A and Type B assets accounted for approximately 13% of the assets of RPT. These “buffer” assets significantly reduce the likelihood that payments will be triggered for any of the wrap providers that wrap assets in the Global Wrap Account or the Global Buy and Hold Account. 4 The Applicants represent that, to address liquidity concerns under RPT, the wrap providers covering assets in RPT have agreed to permit the Trustee and BlackRock Advisers to sell a vertical slice of securities held in RPT, other than securities covered by the Special Purpose Wrap Agreement (discussed below), to fund certain Plan-level withdrawals. In this regard, BAC will provide direct capital contributions to fund the difference between the market value and the book value of the assets attributable to the withdrawing Plans in an amount of up to $175 million. BAC's commitment to provide liquidity will be in effect for a maximum period of two years. 16. The BANA RPT Stable Value Agreements effectively function to protect Plans that invest in RPT if there are significant withdrawals during negative market conditions. RPT has been structured with the expectation that RPT liquidity requirements can be satisfied without resort to the assets covered by the wrap contracts. Since RPT was established in 1989, the Trustee has never been required to access the wrap contracts. Eligible investments made by RPT are generally conservative and the buffer assets reduce the likelihood that a payment would need to be made under a wrap contract. 5 Each of the RPT Stable Value Agreements also has strict investment guidelines regarding the investments that can be held under those contracts. Only in the event that there are substantial withdrawals from RPT at a time when the assets of RPT are significantly underperforming would there be any risk that the assets covered by the wrap contracts would need to be liquidated to satisfy withdrawals and a payment from a wrap provider would be required. Moreover, in the current distressed economic environment, participants in employee benefit plans have generally moved assets into conservative investments, such as stable value funds. RPT had a net inflow ( i.e., contributions in excess of withdrawals) of approximately $300 million during the fourth quarter of 2008. 5 The Department has not considered the issue, and is expressing no opinion herein, regarding whether RPT assets have been invested on a conservative basis or in a manner consistent with RPT guidelines. 17. The crediting rate under a wrap agreement is the rate of interest that is used for purposes of determining the accrued interest to be added to the book value of the assets covered by the agreement. Under either RPT Stable Value Agreement, such crediting rate (the Crediting Rate) was set at the inception of the wrap agreement by agreement between BANA and the Trustee and has been, and will continue to be, reset periodically based on an objective formula. The Crediting Rate formula is designed to amortize the difference between the market value and the book value of assets covered by the wrap agreement over the approximate duration of the covered assets. The Crediting Rate formula used in the BANA RPT Global Wrap Agreement and the BANA RPT Buy and Hold Wrap Agreement, effective as of March 1, 2009, is: Crediting Rate = [(PMV/PBV) 1/(FDUR) * (1 + AYTM)] − 1 Where: PMV is the market value of the covered assets; PBV is the book value of the covered assets; ATYM is the dollar duration weighted annualized yield to maturity of the covered assets; DUR is the modified duration (Macaulay duration of the asset or assets * 1/1 + dollar duration weighted annualized yield to maturity of the covered assets); and F is the factor, if any, agreed upon by the Trustee or its designee, BANA and the other wrap providers covering assets in the Global Wrap Account or the Global Buy and Hold Account, and approved by the Independent Fiduciary for purposes of modifying the duration component of the Crediting Rate. 6 6 According to the Applicants, prior to March 2009, a slightly different Crediting Rate (to the one above) was set forth in the RPT Stable Value Agreements and the Separately Managed Account Wrap Agreements (described below), and a simplified version of that formula was used to calculate the Crediting Rate. The Applicants note further that, in at least one instance, the Crediting Rate was increased in the middle of a month. The Applicants do not believe these modifications, which are described in further detail below, adversely affected Plan participants and beneficiaries. 18. In the current economic environment, it has become standard stable value industry practice to vary the duration component of the Crediting Rate formula to more quickly amortize the difference between the book value and the market value of assets covered by a wrap agreement. BlackRock Advisors and the Trustee believe that having flexibility to vary the duration component of the Crediting Rate formula applicable to the BANA RPT Stable Value Agreements is in the best interests of participants and beneficiaries because it will greatly enhance BlackRock Advisors' ability to react to low market to book ratios, the risk that securities will be downgraded, low Crediting Rates and volatile cash flows. 7 7 The Department notes that the Trustee's ability to shorten the duration component of the Crediting Rate formula may also benefit BANA by reducing the likelihood that BANA will have to make a payment to RPT during the immunization period (as described below). 19. The assets in RPT are valued by BlackRock on a daily basis using a BlackRock-approved process that applies to all client securities held by BlackRock. Valuations are performed without regard to whether the security is held in RPT or another account or commingled vehicle advised by BlackRock. When valuing securities in RPT, in all cases, BlackRock looks first to external third-party pricing sources, including index providers, broker-dealers and independent pricing services. BlackRock has a hierarchy for prioritizing third-party pricing sources, based on availability and reliability of the price obtained. The pricing source may vary by asset class or type, but not for a particular security. Over time, the hierarchy used for a particular asset class may change due to a decrease in accuracy or consistency or a drop in coverage for a particular security. Currently, BlackRock's third-party pricing hierarchy generally works in the following order: (i) Index providers; (ii) broker-dealers (structured products); 8 and (iii) third-party pricing services (currently FT Interactive and Reuters Pricing Services). 8 The Applicants state that, as a practical matter, in many instances broker-dealers will be the first pricing source for securities, including non-agency mortgage backed securities, in stable value products, because no index provider is available. 20. BlackRock Solutions (BRS), a financial modeling group, would generate its own valuation only when it exhausts the third-party sources for a valuation. This could occur when there are no market quotations available for a security, or if a security were to break a control, which means that it is identified by the computer system because the price provided by a third-party source does not fall within certain statistical norms. 9 Historically, BRS has been able to rely exclusively on third-party sources to price securities of the type held in RPT and, to date, has never generated its own price for such securities. However, as a result of the current market instability, BRS has enhanced and formalized its process for valuing securities when third-party sources are not available. With respect to assets covered by the RPT Stable Value Wrap Agreements, any valuation generated by BRS will be subject to the limitations described below. 9 The Applicants state that a security breaking a control does not necessarily mean that BRS will independently value the security. When a security breaks a control, BRS first contacts the external third-party pricing source that generated the value, provides that third-party source with additional information regarding the issue and asks the third-party source to review its price. The independent pricing source will verify or change its price based on the information provided. BRS will use the third party's valuation of a particular security, unless a determination has been made that the price is unreliable. If the price is deemed unreliable, it will be valued in accordance with this paragraph 20, subject to Independent Fiduciary oversight, as described below. 21. BANA and the Trustee each have the right to terminate the BANA RPT Global Wrap Agreement through an “immunization” process set forth in the BANA RPT Global Wrap Agreement. 10 If an immunization period occurs, the wrapped assets will be managed in accordance with investment guidelines that are more conservative than the investment guidelines applicable under the wrap contract before the immunization period, with the intent of closing any gap between the market value of the wrapped assets and the wrap contract book value. The BANA RPT Global Wrap Agreement has what is referred to as a “pull to par” provision, so that the agreement will not terminate (absent the application of another termination provision, such as an event of default) until the gap between the market value of the wrapped assets and the wrap contract book value is closed, however long that takes. This “pull to par” provision has become a market standard provision and was included in the BANA RPT Global Wrap agreement prior to December 31, 2008. During the immunization period, if all wrapped assets were liquidated to fund book value payments, and market value had not converged with contract book value, BANA would be obligated to pay the remainder of the book value of the contract. 10 The Applicants state that, because the BANA RPT Buy and Hold Wrap Agreement covers a “buy and hold” portfolio, instead of an actively managed portfolio as covered by the BANA RPT Global Wrap Agreement, immunization is not a feature of the BANA RPT Buy and Hold Wrap Agreement. In this regard, the Trustee may elect to terminate the BANA RPT Buy and Hold Wrap Agreement by giving BANA seven business day's notice of such election. Absent a default by the Trustee, if BANA wants to terminate the BANA RPT Buy and Hold Wrap Agreement, BANA would not agree to future additions to, or substitution of assets in, the “buy and hold” portfolio covered by the agreement. In that event, the BANA RPT Buy and Hold Wrap Agreement generally would terminate on the maturity date of the latest maturing asset covered by the agreement. 22. According to the Applicants, immunization of a wrap contract is more protective of Plan participants and beneficiaries than immediate termination, if a substitute wrap provider is not available. In this regard, the Applicants state that if a substitute wrap provider is not available, immediate termination of the BANA RPT Global Wrap Agreement or any other wrap contract covering assets in the Global Wrap Account at a time when the book value exceeded the market value would likely result in RPT “breaking the buck” ( i.e., the value of participants' accounts would reflect the market value, rather than the book value, of assets that are no longer covered by the BANA RPT Global Wrap Agreement). If all or a portion of the Global Wrap Account is immunized, the returns would be reduced over time, but participants would still receive the book value of their account. In any event, because immunization could result in participants or Plan sponsors changing investment alternatives and loss of assets under management, BlackRock Advisors would work to find a substitute wrap provider as quickly as reasonably possible. Paragraphs 23-29. Applicants' Representations and Request for Relief Regarding the Execution and Operation of the RPT Stable Value Wrap Agreements 23. The Applicants seek exemptive relief for: The operation of the RPT Stable Value Wrap Agreements, pursuant to the terms of; and for transactions under the RPT Stable Value Wrap Agreements. The Applicants describe the operation of the RPT Stable Value Agreements as including, among other things, the following transactions (the RPT Wrap-Related Transactions): (1) The determination, calculation of, and adjustments to, the Crediting Rate and any changes to the Crediting Rate formula; (2) valuations of securities covered by the RPT Stable Value Agreements; (3) payment of wrap fees and any changes to wrap fees; (4) the purchase and sale of any security covered by the RPT Stable Value Agreements; (5) BANA's or the Trustee's exercise of its right to immunize or terminate the RPT Stable Value Agreements; and (6) amendments to the RPT Stable Value Agreements. 24. According to the Applicants, the provision of wrap coverage by BANA to RPT could be considered an extension of credit under section 406(a) of ERISA. The Applicants state also that, because BANA and Merrill are under common control by BAC, and Merrill has an approximate 34% equity ownership interest in BlackRock, the maintenance of and transactions under the BANA RPT Stable Value Agreements could give rise to self-dealing concerns under section 406(b) of ERISA. In particular, BlackRock Advisor's role as investment adviser raises a concern that it could make investment decisions that are designed to benefit BANA, to the detriment of Plan participants and beneficiaries. 25. The Applicants request that the exemptive relief sought herein be retroactive to January 1, 2009 (the date of the Merrill/BAC Merger). The Applicants state that retroactive relief is appropriate because terminating the BANA RPT Global Wrap Agreement prior to the Merger could have caused significant disruption to Plans and participants and beneficiaries investing in RPT. In this regard, if a substitute wrap provider was not available to replace BANA, immediate termination of the BANA RPT Global Wrap Agreement or any other wrap agreement covering assets in the Global Wrap Account could have resulted in RPT “breaking the buck” ( i.e., the value of the participants' accounts would have reflected the market value (rather than the higher book value) of assets no longer covered by the BANA RPT Global Wrap Agreement). 26. The Applicants propose a number of conditions with respect to covered transactions involving the RPT Stable Value Agreements. In this regard, effective June 1, 2009, BlackRock Advisors may only change the formula for calculating the Crediting Rate after obtaining prior approval of BANA, the other financial institutions that have entered into wrap agreements covering the same assets in the Global Wrap Account or the Global Buy and Hold Account, as the case may be, and the Independent Fiduciary. BlackRock Advisors shall provide the Independent Fiduciary with any information it may reasonably request in determining whether to approve any proposed change in the Crediting Rate formula. Additionally, the Crediting Rate with respect to a RPT Stable Value Wrap Agreement may not be reset more frequently than on a monthly basis, unless: (1) Prior to such resetting, the crediting rate with respect to a non-BANA wrap agreement covering assets in the same Global Account as such RPT Stable Value Wrap Agreement is reset more frequently than on a monthly basis; and (2) the Crediting Rate is reset at the same time, and in the same manner, as such other crediting rate. Each financial institution entering into a wrap agreement covering assets included in a Global Account will obtain information from BlackRock Advisors on a monthly basis regarding the investments that are included in those accounts sufficient to enable the financial institution to independently verify that the Crediting Rate was calculated properly. In addition, the dollar amount of Global Wrap Account assets covered by the BANA RPT Global Wrap Agreement shall not exceed 50% of the total assets held in such Account, and the terms associated with the BANA RPT Global Wrap Agreement at the time such Agreement was entered into, amended, modified or renewed shall be no less favorable to RPT than the terms associated with comparable agreements with unrelated parties. Similarly, the dollar amount of Global Buy and Hold Account assets covered by the BANA RPT Buy and Hold Wrap Agreement shall not exceed 60% of the total assets held in such Account, and the terms associated with the BANA RPT Buy and Hold Wrap Agreement at the time such Agreement was entered into, amended, modified or renewed shall be no less favorable to RPT than the terms associated with comparable agreements with unrelated parties. Further, any RPT Wrap-Related Transaction that involves: (1) The exercise by BANA, the Trustee, or BlackRock Advisors of their rights under the RPT Stable Value Agreements; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under the RPT Stable Value Agreements, shall be subject to prior review and approval by the Independent Fiduciary if such exercise or performance affects the Crediting Rate or would otherwise have an adverse impact on the book value of a participant's or beneficiary's investment in RPT. Additionally, the Independent Fiduciary must receive a copy of any amendment contemplated for the RPT Stable Value Agreements (other than amendments that are purely ministerial in nature), and must thereafter review and approve the amendment prior to its implementation. 27. The Applicants represent that the fee BANA will receive under the BANA RPT Global Wrap Agreement or the BANA RPT Buy and Hold Wrap Agreement will be reasonable relative to market conditions and risks, as determined and approved annually by the Independent Fiduciary. Notwithstanding this, in no event shall the fee exceed the maximum percentage fee paid to any other financial institution that has entered into a wrap agreement covering the same assets in the Global Wrap Account or the Global Buy and Hold Account, as the case may be. Additionally, the Trustee will not trigger immunization with respect to the BANA RPT Global Wrap Agreement unless: (i) The Trustee triggers immunization with respect to another wrap agreement ( i.e., not provided by BANA) covering the same assets in the Global Wrap Account, immediately prior to, or at the same time as, immunization is triggered with respect to the BANA RPT Global Wrap Agreement; (ii) another financial institution that has entered into a wrap agreement with respect to assets in the Global Wrap Account triggers immunization immediately prior to, or at the same time as, immunization is triggered with respect to the BANA RPT Global Wrap Agreement; or (iii) the Trustee determines that BANA is no longer financially responsible and the Independent Fiduciary determines that the immunization is in the interests of investing Plans. 28. The Applicants represent that assets held in RPT will be valued at their current fair market value on a daily basis. Valuations will be based on the price that may be obtained in a current arm's-length sale to a third party. In this regard, BlackRock will first obtain prices for securities from independent third-party sources, including index providers, broker-dealers and independent pricing services. To do this, BlackRock will maintain a hierarchy that prioritizes pricing sources by asset class or type and will value securities based on the price generated by the highest priority source. If no third-party sources are available to value a security (or the price generated by the third-party falls outside specified statistical norms, and, after review, BlackRock determines that such price is not reliable), BlackRock will value the security using an analytic methodology. The Independent Fiduciary will thereafter review that methodology and valuation, and obtain its own valuation if it deems appropriate. Each financial institution that has entered into a wrap agreement covering assets in the Global Wrap Account and the Global Buy and Hold Account, including BANA, has the right to object to the valuation of a particular security, regardless of the source of the valuation. If such an objection is made, wrap providers that are not affiliated with BANA may thereafter determine a new valuation for the security, and BANA will be bound by this new valuation notwithstanding that BANA did not participate in the determination of such valuation, provided that BANA is provided with reasonably satisfactory documentation supporting the valuation. 29. Prior to a Plan sponsor's decision to include RPT as an investment option for participants in the Plans it sponsors, the Trustee will provide the Plan sponsor with the following: The RPT Declaration of Trust (as amended and restated as of April 23, 2009, and as may be further amended from time to time); a purchase agreement to be entered into by the Plan fiduciary and the Trustee; upon request, a copy of the Annual Report for RPT and a fact sheet describing RPT's investment objective and strategy and a performance analysis; and a copy of the proposed exemption or the final exemption, if granted. Additionally, on an ongoing basis, Plan fiduciaries will receive the Annual Report for RPT and the Plan's Investment Summary and Accounting. Plan participants will also receive information describing the investment objectives and performance of RPT; and a statement, delivered at least quarterly, that sets forth the value of the participant's account contributions, withdrawals, distributions, loans and change in value since the prior statement. Paragraphs 30-40. Applicants' Representations and Request for Relief Regarding the Execution and Operation of the RPT Special Purpose Wrap Agreement 30. The Applicants represent that, in the current market environment, there is a significantly increased risk that the credit rating of securities of the type included in RPT will be downgraded, including downgrades to below Baa3, BBB− or BBB− by Moody's Investors Services, Inc., Standard & Poor's Rating Group, or Fitch Ratings, respectively (Below Investment Grade Securities). However, several wrap agreements in RPT do not “cover” Below Investment Grade Securities. 11 If a security held by RPT is no longer covered by a wrap agreement, participant accounts (with respect to Plans that invest in RPT) will reflect the lower market value, rather than the book value, with respect to the portion of their account attributable to the unwrapped security. This could cause RPT to effectively “break the buck.” 11 In other words, these wrap agreements either do not permit a cure period ( i.e., a period of time during which a downgraded security may be sold), or have a cure period that is of a limited duration. 31. To reduce the risk that Below Investment Grade Securities would cause RPT to “break the buck,” MLTC and BANA entered into the RPT Special Purpose Wrap Agreement on April 23, 2009. The RPT Special Purpose Wrap Agreement is designed to cover securities which cease to be covered by a RPT wrap solely as a result of a downgrade in the security's credit rating to below “investment grade.” Under the RPT Special Purpose Wrap Agreement, BlackRock Advisors will automatically transfer each Below Investment Grade Security to a new portfolio (the Type D1 Account), and that security will be covered by the RPT Special Purpose Wrap Agreement (hereafter, a Below Grade Investment Security held in the Type D1 Account and covered by the RPT Special Purpose Wrap Agreement shall be referred to as a Downgraded Security). As described in paragraph 34 below, the RPT Special Purpose Wrap Agreement is designed to rapidly amortize the difference between the amortized cost of a Downgraded Security and the market value of the Downgraded Security. 12 12 The Applicants state that securities that are “impaired” will not be transferred to the RPT Special Purpose Wrap Agreement. The Applicants generally describe an “impaired” security as: (a) A security with respect to which the issuer or guarantor has failed to make one or more payments of principal or interest; (b) a security with respect to which the principal or interest has become due and payable before it otherwise would have been due or payable; (c) a security where the rate of interest thereon has been reset; or (d) a security with respect to which the issuer becomes insolvent or institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy. The Applicant states that an “impaired security” would remain in RPT and the Trustee would decide whether to hold or sell such security. 32. The proposed exemption, if granted, would permit certain transactions in connection with the operation of the RPT Special Purpose Wrap Agreement. These transactions (the Special Purpose Wrap-Related Transactions) include: (1) The transfer of Below Investment Grade Securities to the Type D1 Account; (2) the sale or transfer of Downgraded Securities out of the Type D1 Account; (3) the purchase and sale of certain other securities permitted to be held in the Type D1 Account (the Permitted Securities, as described below); (4) transactions relating to maintenance of a minimum ratio of Permitted Securities and Downgraded Securities (the Minimum Ratio, as described below); (5) the determination, calculation of and adjustments to the Type D1 Account Crediting Rate (described below) and any changes to the Type D1 Account Crediting Rate formula; (6) valuations of securities covered by the RPT Special Purpose Wrap Agreement; (7) payment of and any changes to wrap fees; (8) BANA's or the Trustee's exercise of its right to immunize or terminate the RPT Special Purpose Wrap Agreement; and (9) the entering into and amendment of the RPT Special Purpose Wrap Agreement. 33. Certain limits apply to the amount of Below Investment Grade Securities that may be transferred to the Type D1 Account. Specifically, the Type D1 Account may consist of up to a maximum of $200 million in: (1) Book value of Downgraded Securities that have not been sold; and/or (2) aggregate unamortized realized losses with respect to Downgraded Securities. BlackRock Advisors expects to sell Downgraded Securities as market conditions permit. Any remaining unamortized losses associated with the sale of the Downgraded Securities will continue to be amortized under the RPT Special Purpose Wrap Agreement. 34. In addition to Downgraded Securities, the Type D1 Account will be funded with Permitted Securities. Permitted Securities are U.S. Treasury debentures, Government National Mortgage Association (GNMA) securities and securities guaranteed by the Federal Deposit Insurance Corporation (FDIC). The Applicants state that these purchases have been made, and the Type D1 Account currently holds approximately $500 million in Permitted Securities. The maximum modified duration of a Permitted Security will be 3.5 years at the time of purchase. The RPT Special Purpose Wrap Agreement requires a minimum ratio of 2.5 to 1.0 of market value of Permitted Securities to the total unamortized unrealized and realized losses with respect to the Downgraded Securities (the Minimum Ratio). 13 This Minimum Ratio is designed to ensure that the Type D1 Account receives sizeable investment gains, which, in turn, would enable a more rapid amortization of the losses included in the RPT Special Purpose Wrap Agreement. The Minimum Ratio will be monitored on a daily basis, and if it drops below 2.5 to 1.0, BlackRock Advisors will correct the ratio within 10 business days either by moving additional Permitted Securities into the Type D1 Account or by selling Downgraded Securities and using the proceeds of those sales to reinvest in Permitted Securities. Notwithstanding the above, if the ratio is not corrected within 10 business days of a breach of the Minimum Ratio, BANA reserves the right to terminate the RPT Special Purpose Wrap Agreement immediately without payment obligation. 13 The Applicants state that the RPT Special Purpose Wrap Agreement permits the Trustee to reduce the amount of Permitted Securities (provided the Minimum Ratio is maintained) if the ratio of the market value of Permitted Securities to the total unamortized unrealized and realized losses with respect to Downgraded Securities is greater than 2.5 to 1.0. 35. The total book value of the assets included in the D1 Account and covered by the RPT Special Purpose Wrap will not exceed $700 million without the prior written consent of the Trustee, BANA, and the Independent Fiduciary. Additionally, the Type D1 Account Crediting Rate will be 0.00% as of the next following reset date at any time when the book value under the wrap agreement includes any unamortized losses (realized or unrealized) on Downgraded Securities. The reason for using a 0.00% Crediting Rate is to amortize losses as quickly as possible and to maintain as much capacity as possible to move additional Below Investment Grade Securities into the Type D1 Account to be covered by the RPT Special Purpose Wrap Agreement. If the book value under the RPT Special Purpose Wrap Agreement does not include any unamortized losses on Downgraded Securities, the Type D1 Account Crediting Rate will be determined on a monthly basis using the following formula: Crediting Rate = [(PMV/PBV) I/(FDUR) * (1 + AYTM)] − 1 Where: AYTM = dollar duration weighted annualized yield to maturity. PMV = fair market value of assets in the Type D1 Account (as reduced by accrued but unpaid fees). PBV = book value of the Type D1 Account. DUR = modified duration (Macaulay duration of the asset or assets * 1/(1 + the dollar weighted annualized yield to maturity of the asset)). F = factor, if any, agreed upon by BlackRock Advisors and BANA and approved by the Independent Fiduciary. 36. The Applicants state that the Type D1 Account Crediting Rate formula would likely generate a higher return for Participants on the assets applied to purchase the Permitted Securities than the approximately 40 basis point return currently received if these assets continued to be held in Type A cash-equivalent investments. Effective June 1, 2009, BlackRock Advisors will not change the Type D1 Account Crediting Rate formula unless BANA and the Independent Fiduciary agree to the adjustment before it is made. BlackRock Advisors must first provide the Independent Fiduciary with any information it may reasonably request in determining whether to approve a proposed change in the formula. Additionally, the Type D1 Account Crediting Rate itself will not be reset more frequently than monthly. 37. Downgraded Securities and Permitted Securities will be valued using the same process applicable to assets in the Global Wrap Account and the Global Buy and Hold Account, as described in paragraph 19 above, except that the Independent Fiduciary will review valuations of Downgraded Securities and Permitted Securities where BlackRock is unable to obtain a reliable valuation from third party sources and, if it deems appropriate, the Independent Fiduciary will obtain an independent valuation, which will be binding upon BANA. Further, if BANA objects to a valuation provided by BlackRock, the Independent Fiduciary will review the valuation and, if it deems appropriate, the Independent Fiduciary will thereafter obtain an independent valuation. In that situation, BANA will be bound by the valuation determined by the Independent Fiduciary. 38. The fee paid by RPT to BANA under the RPT Special Purpose Wrap Agreement was initially set at 15 basis points per annum, payable quarterly. 14 The fee must be reviewed annually for reasonableness relative to market conditions and risks, and approved by the Independent Fiduciary in the manner described in paragraph 47 below. Notwithstanding this, in no event shall the fee exceed 15 basis points. The fee will be based on the total book value of assets included in the Type D1 Account, including both the Downgraded Securities and the Permitted Securities. 14 As described in further detail in paragraph 51 below, the Independent Fiduciary has submitted a written report (the Report) to the Department regarding the Special Purpose Wrap Agreement arrangement. In the Report, the Independent Fiduciary opined that a fee level of 15 basis points is reasonable and within the range of fees paid by RPT to other, unrelated wrap providers. 39. The RPT Special Purpose Wrap Agreement will not have a specified term, but will be an “evergreen” contract. However, unless otherwise agreed by BANA, the Trustee, and the Independent Fiduciary, no Below Investment Grade Securities will be added to the RPT Special Purpose Wrap Agreement after April 23, 2011. The Trustee has the right to immunize the portfolio of securities included in the Type D1 Account only if BANA elects to terminate the RPT Special Purpose Wrap Agreement, or if BANA defaults under the RPT Special Purpose Wrap Agreement. If an immunization election becomes effective (the RPT Special Purpose Immunization Date), the RPT Special Purpose Wrap Agreement would terminate on the later of: (1) The date that is the number of years after the RPT Special Purpose Immunization Date which does not extend beyond the modified duration (as defined in the RPT Special Purpose Wrap Agreement) of the underlying assets on the RPT Special Purpose Immunization Date; or (2) the first date on which the market value of the underlying assets equals or exceeds the book value under the wrap agreement. From the RPT Special Purpose Immunization Date to the termination date, the underlying assets would be managed by BlackRock Advisors in accordance with immunization guidelines set forth in the RPT Special Purpose Wrap Agreement. This Agreement has a “pull to par” provision, as described above, and may be terminated by the Trustee at market value at any time, but the Trustee would only do so if alternative wrap coverage was available. According to the Applicants, the Trustee generally would not take this action unless the market value of the assets in the Type D1 Account exceeded the book value of those assets and another wrap provider agreed to provide a benefit responsive facility with respect to those assets. 40. The Trustee has engaged the Independent Fiduciary to monitor the performance of BlackRock Advisors and the Trustee with respect to the Type D1 Account and the RPT Special Purpose Wrap Agreement. Under the terms of this engagement, and as described in part above, the Independent Fiduciary must, among other things: (1) Determine whether the RPT Special Purpose Wrap Agreement and the Type D1 Account arrangement are prudent and in the best interest of participants and beneficiaries of the Plans that have invested in RPT; (2) make an initial and, thereafter, annual determination regarding whether the fee paid by RPT to BANA under the Special Purpose Wrap Agreement is reasonable relative to the specific attributes of the RPT Special Purpose Wrap Agreement; (3) make an annual determination regarding whether the continued maintenance of the RPT Special Purpose Wrap Agreement is appropriate and in the interest of Plans; and (4) make a monthly determination regarding whether the appropriate Type D1 Account Crediting Rate formula is being used and a monthly determination regarding whether such appropriate formula is being applied in proper manner. Further, the Independent Fiduciary must receive a copy of any amendment contemplated for the RPT Special Purpose Wrap Agreement (other than amendments that are purely ministerial in nature), and must thereafter review and approve the amendment prior to its implementation. Finally, the Independent Fiduciary must review and give prior approval for any RPT Special Purpose Wrap-Related Transaction that involves: (1) The exercise by BANA, the Trustee, or BlackRock Advisors of their rights under the RPT Special Purpose Wrap Agreement; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under the RPT Special Purpose Wrap Agreement, if such exercise or performance affects the Type D1 Crediting Rate or otherwise would have an adverse impact on the book value of a participant's or beneficiary's investment in RPT. Paragraphs 41-49. Applicants' Request for Relief Involving the Separately Managed Account Wrap Agreements 41. The Applicants also seek exemptive relief for the provision and operation of certain wrap agreements applicable to two separately managed accounts. In this regard, BlackRock Advisors manages two separately managed accounts, one on behalf of the Hertz Plan (the Hertz Separately Managed Account) and the other on behalf of the Wal-Mart Plan (the Wal-Mart Separately Managed Account). These two separately managed accounts (the Separately Managed Accounts) operate in a manner that is substantially similar to RPT while being set up for individual employee benefit plans, rather than contained as part of a collective trust. MLTC is the directed trustee for the Wal-Mart Separately Managed Account. MLTC entered into an agreement with BANA, dated August 19, 2003, and amended effective as of December 31, 2008, pursuant to which BANA provides a book value benefit responsive facility with respect to a portion of the assets held in the Wal-Mart Separately Managed Account (BANA Wal-Mart Separately Managed Wrap Agreement). The Bank of New York Mellon, as successor by operation of law to Mellon Bank N.A. (Mellon) is the trustee for the Hertz Separately Managed Account, and Mellon entered into an agreement with BANA and BlackRock Advisors, as investment manager, dated July 27, 2007, and amended effective as of December 31, 2008, pursuant to which BANA provides a book value benefit responsive facility with respect to a portion of the assets held in the Hertz Separately Managed Account (the BANA Hertz Separately Managed Wrap Agreement). 42. The Applicants request that the exemptive relief sought with respect to the BANA Wal-Mart Separately Managed Wrap Agreement and the BANA Hertz Separately Managed Wrap Agreement (collectively, the Separately Managed Account Wrap Agreements) be retroactive to January 1, 2009 ( i.e., the date of the Merrill/BAC Merger). The Applicants state that retroactive relief is appropriate since terminating the Separately Managed Account Wrap Agreements prior to the Merrill/BAC Merger would have caused significant disruption to the Plans and participants and beneficiaries invested in the Separately Managed Accounts. In this regard, the Applicants represent that in the current distressed economic environment it is unlikely that a substitute wrap provider could have been found for BANA. If a substitute wrap provider was not available, immediate termination of the Separately Managed Account Wrap Agreements could have resulted in the Separately Managed Accounts “breaking the buck” ( i.e., the value of the participants' accounts would have reflected the market value (rather than the higher book value) of assets no longer covered by the Separately Managed Account Wrap Agreements. 43. According to the Applicants, the provision of wrap coverage by BANA to the Separately Managed Accounts could be considered an extension of credit under section 406(a) of ERISA. The Applicants state also that, because BANA and Merrill are under common control by BAC, and Merrill has an approximate 34% equity ownership interest in BlackRock, the operation of the Separately Managed Account Agreements, and certain transactions engaged in under such Agreements, could give rise to self-dealing concerns under section 406(b) of ERISA. In particular, BlackRock Advisor's role as investment adviser raises a concern that it could make investment decisions that are designed to benefit BANA, to the detriment of participants in the Hertz Plan and/or the Wal-Mart Plan. 44. The Applicants describe the provision and maintenance of the Separately Managed Account Wrap Agreements as including the following transactions (the Separately Managed Wrap-Related Transactions): (1) The determination, calculation of and adjustments to the Crediting Rate and any changes to the Crediting Rate formula; (2) valuations of securities covered by the Separately Managed Account Wrap Agreements; (3) payment of wrap fees and any changes to wrap fees; (4) the purchase and sale of any security covered by the Separately Managed Account Wrap Agreements; (5) BANA's or the Trustee's exercise of its right to terminate the Separately Managed Wrap Agreements; and (6) amendments to the Separately Managed Wrap Agreements. 45. The Separately Managed Account Wrap Agreements are “buy and hold” arrangements and do not cover actively-managed portfolios. The BANA Wal-Mart Separately Managed Wrap Agreement provides two levels of “buffers” which would be accessed before any assets covered by BANA would be used to provide benefit responsive payments. More than 64.3% of the assets in the Wal-Mart Separately Managed Account consist of investments held in these buffers, referred to as Tier 1 and Tier 2. The assets covered by the BANA Wal-Mart Separately Managed Wrap Agreement are included in the last tier to be accessed (Tier 3) and, when accessed, are only accessed on a pro-rata basis with the assets covered by the seven other Tier 3 Wrap Providers. 15 The BANA Hertz Separately Managed Wrap Agreement has one buffer which is accessed before any assets covered by the BANA Hertz Separately Managed Wrap Agreement would be accessed to provide benefit responsive payments. Sixty-three and a third percent of the assets in the Hertz Separately Managed Account are held in this buffer. After the initial buffer is depleted for benefit responsive payments, assets are sold using the last-in-first-out principle. Because the assets covered by the BANA Hertz Separately Managed Wrap Agreement are the assets in the Hertz Separately Managed Account that became subject to a benefit responsive facility most recently prior to the date of the Application, these assets will be the first assets sold to satisfy benefit responsive payments after the buffer is depleted. 15 The Applicants describe a Tier 3 Wrap Provider as a financial institution that has entered into a wrap agreement with respect to assets held in the Wal-Mart Separately Managed Account that will not be accessed for purposes of making benefit payments until two tiers of buffer assets are accessed. 46. The Applicants propose several conditions with respect to covered transactions involving the Separately Managed Wrap Agreements. In this regard, under each Agreement, the Crediting Rate was set at the inception of the wrap agreement by BANA and the counterparty and has been, and will continue to be, reset periodically based on a formula designed to amortize the difference between the market value and the book value of the assets covered by the wrap agreement over the approximate duration of the covered assets. The Crediting Rate formula used in the BANA Hertz Separately Managed Wrap Agreement, effective March 1, 2009, is: Crediting Rate = [(PMV/PBV) I/(F*DUR) (1 + AYTM)]−1. The Crediting Rate formula in the Wal-Mart Separately Managed Wrap Agreement, effective March 1, 2009, 16 is: 16 See footnote 6. Net Crediting Rate = [((PMV/PBV) I/(FDUR) * (1 + AYTM))−1]−WF Where: PMV = market value of the covered assets. PBV = book value of the covered assets. AYTM = dollar duration weighted annualized yield to maturity of the covered assets. DUR = modified duration {Macaulay duration of the asset or assets * 1/(1+ dollar weighted annualized yield to maturity of the asset or asset)). F = factor, if any, agreed upon by BlackRock Advisors and BANA and approved by the Independent Fiduciary for purposes of modifying the duration component of the Crediting Rate. WF = wrap fee rate. Effective June 1, 2009, BlackRock Advisors may only change the formula for calculating the Crediting Rate after obtaining prior approval of BANA and the Independent Fiduciary. 47. BANA will not receive a fee under the either the BANA Wal-Mart Separately Managed Wrap Agreement or the BANA Hertz Separately Managed Wrap Agreement in excess of the maximum percentage fee received by any other Tier 3 Wrap Provider in the Wal-Mart Separately Managed Account or the BANA Hertz Separately Managed Wrap Agreement, as the case may be. Additionally, assets covered by the BANA Hertz Separately Managed Wrap Agreement and the BANA Wal-Mart Separately Managed Wrap Agreement will be valued in a similar fashion as assets covered by the BANA RPT Stable Value Agreements, except that, if BANA objects to the valuation of any asset, the Independent Fiduciary will make a binding determination of the value of the asset. 48. Pursuant to the investment management agreements relating to the Separately Managed Accounts, BlackRock Advisors provides the named fiduciaries of the Hertz Plan and the Wal-Mart Plan with information regarding investment performance and the assets held in the Separately Managed Accounts, including type of asset, crediting rate, duration and credit quality. In contrast with the BANA RPT Stable Value Agreements, the Separately Managed Account Wrap Agreements are not global arrangements. Each agreement provides coverage for 100% of the book value of the specified assets. Because the Separately Managed Account Wrap Agreements are not global arrangements, no wrap provider (other than BANA) is involved in these arrangements that, as an independent third party, could protect against potential conflicts of interests between BANA and BlackRock Advisors. For this reason, BlackRock Advisors and a named fiduciary of the Hertz Plan, and BlackRock Advisors and a named fiduciary of the WalMart Plan, have engaged the Independent Fiduciary to perform the following tasks (which are in addition to the duties described above): (1) Conduct a monthly review of the Crediting Rate; (2) analyze the purchase or sale of any security, including any change to the market to book ratio, duration or Crediting Rate; (3) review and approve any proposed amendment to the BANA Hertz Separately Managed Wrap Agreement or the BANA Wal-Mart Separately Managed Wrap Agreement; (4) review any exercise of contract provisions by any of BANA, BlackRock Advisors or, in the case of the BANA Wal-Mart Separately Managed Wrap Agreement, the Trustee, and analyze its potential impact on investors; (5) provide quarterly reports to BlackRock Advisors and to the named fiduciaries of the Wal-Mart Plan and the Hertz Plan stating, among other things, whether BlackRock Advisors has complied with all requirements of its contract. The Independent Fiduciary will also inform the named fiduciaries of a Plan if it believes that BANA or BlackRock Advisors has taken any actions that are not in the best interests of the participants and beneficiaries in the Wal-Mart Plan or the Hertz Plan, as relevant. Consistent with this, the Independent Fiduciary will review and must give prior approval for any Separately Managed Account Wrap-Related Transaction that involves: (1) The exercise by BANA, the Trustee, or BlackRock Advisors of their rights under the Separately Managed Account Wrap Agreements; or (2) the performance by BANA, the Trustee, or BlackRock of their obligations under the Separately Managed Account Wrap Agreements, if such exercise or performance affects the Crediting Rate or otherwise would have an adverse impact on the book value of a participant's or beneficiary's investment in the Separately Managed Accounts. 49. Each of the Separately Managed Account Wrap Agreements effectively may be terminated by terminating the appointment of BlackRock Advisors as investment manager. Under the Hertz Separately Managed Account, the named fiduciaries (or their authorized representatives) of the Hertz Plan may terminate BlackRock Advisors, as the investment manager, on 30 days' notice. Under the Wal-Mart Separately Managed Account, the named fiduciaries (or their authorized representatives) of the Wal-Mart Plan may terminate BlackRock Advisors, as the investment manager, on 90 days' notice. Because each of the Separately Managed Account Wrap Agreements covers a “buy and hold” portfolio, immunization is not a feature of either agreement. BlackRock Advisors may elect to terminate the Separately Managed Account Wrap Agreements by giving BANA seven business days' notice of such election. Absent a default by the counterparty, BANA may terminate the Separately Managed Account Wrap Agreements by failing to agree to future additions to, or substitution of assets in, the “buy and hold” portfolio covered by the agreement and then the agreement generally would terminate on the maturity date of the latest maturing asset covered by the agreement. Paragraphs 50-51. The Independent Fiduciary 50. The Independent Fiduciary is Fiduciary Counselors Inc., located in Washington, DC. The Independent Fiduciary is experienced and knowledgeable in the transactions and arrangements described herein. The Independent Fiduciary is independent of and unrelated to BANA, Merrill, BlackRock and their Affiliates. In this regard, the Independent Fiduciary represents that, during any year of its engagement, its annual gross revenue from BANA, Merrill, and BlackRock has not, and will not, exceed five percent (5%) of the Independent Fiduciary's annual gross revenue from all sources (for federal income tax purposes) for its prior tax year. 51. In a written report dated April 2, 2009, submitted to the Department (the Report), the Independent Fiduciary made a number of representations regarding the RPT Special Purpose Wrap Agreement. In the Report, the Independent Fiduciary stated that, among other things: the RPT Special Purpose Wrap Agreement is an innovative solution to the “breaking the buck” problem with a laudable objective that clearly is in the best interests of Plan participants; and it is likely that the 15 basis point annual wrap fee associated with the RPT Special Purpose Wrap Agreement will soon be industry average, if not lower than average. Regarding the Type D1 Account Crediting Rate, the Independent Fiduciary stated that such crediting rate arrangement is reasonable given that BANA has a limited capacity to absorb Below Investment Grade Securities, and that additional capacity is not available from anyone else. In the Report, the Independent Fiduciary states further that the investment management flexibility (regarding the sale of Below Investment Grade Securities) allowed by the Special Purpose Wrap Agreement benefits Plan participants because it will enable sales to occur when market conditions warrant, without the imposition of constraints from the wrapper contract. Additionally, the Independent Fiduciary stated in the Report that other provisions in the Special Purpose Wrap Agreement are within the norms for wrap contracts between unrelated parties. 52. In summary, the Applicants represent that the transactions described herein satisfy the statutory criteria set forth in section 408(a) of the Act and section 4975(c)(2) of the Code because, among other things: in the current distressed economic environment it is unlikely that a substitute wrap provider could be found for BANA; the interests of affected Plans have been, and will be, protected by the Independent Fiduciary; and the fee received by BANA pursuant to the arrangements described herein will be reasonable relative to market conditions and risks, as determined by the Independent Fiduciary. Notice to Interested Persons Written notice will be provided to a representative of each Plan invested in RPT, and the named fiduciaries of the Hertz Plan and the Wal-Mart Plan. The notice shall contain a copy of the proposed exemption as published in the Federal Register and an explanation of the rights of interested parties to comment regarding the proposed exemption. Such notice will be provided by personal or express delivery, or electronically if correspondence between the relevant parties is typically carried out electronically, within 15 days of the issuance of the proposed exemption. Any written comments must be received by the Department from interested persons within 45 days of the publication of this proposed exemption in the Federal Register .