Proposed Exemptions; Harris Trust & Savings Bank

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10349, et al.]

Proposed Exemptions; Harris Trust & Savings Bank

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restrictions of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

requests for a hearing should state: (1) the name, address, and

telephone number of the person making the comment or request, and (2)

the nature of the person's interest in the exemption and the manner in

which the person would be adversely affected by the exemption. A

request for a hearing must also state the issues to be addressed and

include a general description of the evidence to be presented at the

hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

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

20210. Attention: Application No. ______, stated in each Notice of

Proposed Exemption. The applications for exemption and the comments

received will be available for public inspection in the Public

Documents Room of Pension and Welfare Benefits Administration, U.S.

Department of Labor, Room N-5507, 200 Constitution Avenue, N.W.,

Washington, D.C. 20210.

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).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

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

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

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

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

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

to the Secretary of Labor. Therefore, these notices of

[[Page 42069]]

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.

Harris Trust & Savings Bank and Its Affiliates (Harris Trust) Located

in Chicago, Illinois

[Application No. D-10349]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Exemption for Acquisition of Fund Shares With Assets

Transferred in-Kind From a CIF

If the exemption is granted, the restrictions of sections 406(a)

and 406(b) of the Act and the sanctions resulting from the application

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

(F) of the Code, shall not apply, as of March 21, 1997, to the

acquisition by employee benefit plans (the Plans), including two plans

sponsored by Harris Trust for its own employees (the In-house Plans),

of shares of any open-end investment companies (the Funds) registered

under the Investment Company Act of 1940 (the '40 Act) for which Harris

Trust is an investment adviser and may provide other services, with

Plan assets transferred in-kind to the Funds from certain collective

investment funds maintained by Harris Trust (the CIFs), in connection

with the termination of the CIFs, provided that the following

conditions are satisfied:

(a) For each Plan, a second fiduciary who is unrelated to, and

independent of, Harris Trust (the Independent Fiduciary) receives prior

written notice of the in-kind transfer of Plan assets from a CIF to a

Fund in exchange for shares of the Fund, as well as the disclosures

described in Section II(f).

(b) On the basis of the information described in Section II(f), the

Independent Fiduciary gives prior written approval for each acquisition

of Fund shares with Plan assets transferred from a CIF and the fees to

be received by Harris Trust in connection with its services to the

Fund. Such approval must be consistent with the general fiduciary

responsibility provisions imposed on fiduciaries by Part 4 of Title I

of the Act.

(c) No sales commissions are paid by the Plans in connection with

the acquisition of Fund shares with Plan assets transferred from a CIF.

(d) All or a pro rata portion of the assets of a CIF are

transferred in-kind to a Fund in exchange for shares of the Fund.

(e) Each Plan receives Fund shares having a total net asset value

equal to the value of the Plan's pro rata share of the corresponding

CIF's assets on the date of the in-kind transfer, based on the current

market value of the CIF's assets as determined in a single valuation

performed in the same manner and as of the close of business of the

same day, using independent sources in accordance with Securities and

Exchange Commission (SEC) Rule 17a-7 1 of the '40 Act and

the procedures established by the Fund pursuant to Rule 17a-7. Such

procedures require that all securities for which a current market value

cannot be obtained by reference to the last sales price for

transactions reported on a recognized securities exchange or quoted in

the NASDAQ system, must be valued based upon an average of the highest

current independent bid and lowest current independent offer, as of the

close of business on the last business day preceding the in-kind

transfer, determined on the basis of reasonable inquiry from at least

three sources that are broker-dealers or pricing services independent

of Harris Trust;

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\1\ 17 CFR 270.17a-7.

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(f) Within 30 days after completion of each acquisition of Fund

shares with Plan assets transferred in-kind from a CIF, Harris Trust

sends by regular mail to the Independent Fiduciary a written

confirmation containing the following information:

(1) The identity of each security that was valued for purposes of

the transaction in accordance with Rule 17a-7(b)(4);

(2) The market price, as of the date of the in-kind transfer, of

each such security; and

(3) The identity of each pricing service or market-maker consulted

in determining the value of such securities.

(g) Within 90 days after completion of each acquisition of Fund

shares with Plan assets transferred in-kind from a CIF, Harris Trust

sends by regular mail to the Independent Fiduciary a written

confirmation containing the following information:

(1) The number of CIF units held by the Plan immediately before the

in-kind transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(2) The number of shares in the Funds that are held by the Plan

immediately after the in-kind transfer, the related per share net asset

value, and the total dollar amount of such shares.

(h) The conditions set forth in paragraphs (c), (d), (e), (f), (i),

(o), (p), and (q) of Section II are satisfied.

Section II--Exemption for Receipt of Fees From the Funds

If the exemption is granted, the restrictions of sections 406(a)

and 406(b) of the Act and the sanctions resulting from the application

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

(F) of the Code, shall not apply, as of March 21, 1997, to the receipt

of fees by Harris Trust from the Funds for acting as an investment

adviser for the Funds, as well as for acting as the custodian, transfer

agent, sub-administrator for the Funds, or for providing any other

``secondary service'' (as defined in Section III(i), below) to the

Funds, in connection with the investment in shares of the Funds by

Plans for which Harris Trust is a fiduciary (the Client Plans), other

than the In-house Plans, provided that the following conditions are

satisfied:

(a) No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds, and no redemption

fees are paid in connection with the sale of such shares by the Client

Plans to the Funds.

(b) The price paid or received by a Client Plan for shares of a

Fund is the net asset value per share, as defined in Section III(f), at

the time of the transaction, and is the same price which would have

been paid or received for the shares by any other investor at that

time.

(c) Neither Harris Trust nor an affiliate (including officers or

directors, and other persons, as defined in Section III(b), below)

purchases from or sells to the Client Plans shares of the Funds.

(d) For each Client Plan, the combined total of all fees received

by Harris Trust for its services to the Client Plan, and in connection

with its services to any of the Funds in which the Client Plan may

invest, constitutes no more than ``reasonable compensation'' within the

meaning of section 408(b)(2) of the Act.

(e) Harris Trust receives no fees payable pursuant to Rule 12b-1

under the 40 Act (12b-1 fees) in connection with the transactions.

(f) Prior to the initial investment by a Client Plan in any of the

Funds, the Independent Fiduciary receives full and

[[Page 42070]]

detailed written disclosure of information concerning the Fund,

including, but not limited to

(1) A current prospectus for the Fund;

(2) A statement describing the fees for investment management,

investment advisory, or other similar services, any fees for Secondary

Services, as defined in Section III(i), and all other relevant fees to

be paid by the Client Plan and by the Fund to Harris Trust, including

the nature and extent of any differential between the rates of such

fees;

(3) The reasons why Harris Trust considers an investment in the

Fund to be appropriate for the Client Plan;

(4) A statement describing whether there are any limitations

applicable to Harris Trust with respect to which assets of a Client

Plan may be invested in the Fund, and, if so, the nature of such

limitations; and

(5) Upon request of the Independent Fiduciary, a copy of the notice

of exemption, if granted (and a copy of this notice of proposed

exemption), once published in the Federal Register.

(g) On the basis of the information described in paragraph (f), the

Independent Fiduciary gives prior written authorization for

(1) The investment of assets of the Client Plan in shares of a

Fund;

(2) The Funds in which the assets of the Client Plan may be

invested; and

(3) The fees to be paid to Harris Trust in connection with its

services to the Funds.

Such authorization by the Independent Fiduciary must be consistent

with the general fiduciary provisions of Part 4 of Title I of the Act.

(h) The authorization described in paragraph (g) is terminable by

the Independent Fiduciary at will without penalty to the Client Plan,

upon written notice of termination to Harris Trust. Harris Trust shall

effect such termination by selling the shares of the Fund held by the

Client Plan by the close of the business day following the date of

receipt by Harris Trust of the termination form (the Termination Form),

as defined in Section III(j), or any other written notice of

termination. However, if, due to circumstances beyond the control of

Harris Trust, the sale cannot be executed within one business day,

Harris Trust shall have one additional business day to complete such

sale.

(i) Each Client Plan receives a credit, either through cash, or, if

applicable, the purchase of additional shares of the Funds pursuant to

an annual election made by the Client Plan (which may be revoked at any

time), of such Client Plan's proportionate share of all investment

advisory fees charged to the Funds by Harris Trust, including any

investment advisory fees paid by Harris Trust to third party sub-

advisers, within one business day of the receipt of such fees by Harris

Trust. The crediting of all such fees to the Client Plans by Harris

Trust must be audited by an independent accounting firm at least

annually to verify the proper crediting of the fees to each Client

Plan.

(j) In the event of an increase in the rate of any fees paid by the

Funds to Harris Trust for any investment management services,

investment advisory services, or other similar services above the rate

which has been approved previously by an Independent Fiduciary, in

accordance with paragraph (g), Harris Trust will provide at least 30

days' written notice (separate from the Fund Prospectus) to each Client

Plan invested in a Fund which is increasing such fees.

(k) In the event of an addition of a Secondary Service by Harris

Trust to a Fund for which a fee is charged, or in the event of an

increase in a fee paid by the Funds to Harris Trust for any Secondary

Service (which may result from either an increase in the rate of such

fee or a decrease in the number or kind of services performed for such

fee) above the rate which has been approved previously by an

Independent Fiduciary, in accordance with paragraph (g), Harris Trust

will provide at least 30 days' written notice (separate from the Fund

Prospectus) to each Client Plan invested in a Fund which is adding a

service or increasing its fees. Such notice shall be accompanied by the

Termination Form.

(l) The Independent Fiduciary is supplied with a Termination Form

at the times specified in paragraphs (k), (l), and (m), which expressly

provides an election to terminate the authorization described in

paragraph (g), with instructions regarding the use of the Termination

Form, including the following information:

(1) The authorization is terminable by the Independent Fiduciary at

will without penalty to the Client Plan, upon written notice of

termination to Harris Trust. Harris Trust shall effect such termination

by selling the shares of the Fund held by the Client Plan by the close

of the business day following the date of receipt by Harris Trust of

the Termination Form, or any other written notice of termination.

However, if, due to circumstances beyond the control of Harris Trust,

the sale cannot be executed within one business day, Harris Trust shall

have one additional business day to complete such sale; and

(2) Failure of the Independent Fiduciary to return the Termination

Form will be deemed to be an approval of the additional Secondary

Service for which a fee is charged or an increase in the rate of any

fees, if such Termination Form is supplied pursuant to paragraphs (k)

and (l), and will result in continuation of authorization, as described

in paragraph (g), for Harris Trust to engage in the transactions on

behalf of the Client Plan.

(m) The Independent Fiduciary is supplied annually with a

Termination Form during the first quarter of each calendar year,

beginning with the calendar year immediately following the date of

publication in the Federal Register of a notice of exemption for the

subject transactions. However, the Termination Form need not be

supplied to the Independent Fiduciary sooner than six months after it

has been supplied pursuant to paragraphs (k) and (l), except to the

extent required to disclose either an additional Secondary Service for

which a fee is charged or an increase in fees.

(n)(1) With respect to each of the Funds in which a Client Plan

invests, Harris Trust will provide the Independent Fiduciary of such

Client Plan:

(A) at least annually, a copy of an updated prospectus of the Fund;

(B) upon the request of the Independent Fiduciary, with a report or

statement (which may take the form of the most recent financial report,

the current statement of additional information, or some other written

statement), which contains a description of all fees paid by the Fund

to Harris Trust; and

(2) With respect to each of the Funds in which a Client Plan

invests, in the event such Fund places brokerage transactions with

Harris Trust, Harris Trust, at least annually, will provide the

Independent Fiduciary of such Client Plan with a statement specifying:

(A) the total dollar amount of brokerage commissions of each Fund's

investment portfolio paid to Harris Trust by such Fund;

(B) the total dollar amount of brokerage commissions of each Fund's

investment portfolio that are paid by such Fund to brokerage firms

unrelated to Harris Trust;

(C) the average brokerage commissions per share, in cents per

share, paid to Harris Trust by each portfolio of a Fund; and

(D) the average brokerage commissions per share, in cents per

share, paid by each portfolio of a Fund to brokerage firms unrelated to

Harris Trust.

(o) All dealings between the Client Plans and the Funds are on a

basis no

[[Page 42071]]

less favorable to the Client Plans than dealings between the Fund and

its other shareholders holding shares of the same class as the Client

Plans.

(p) Harris Trust maintains for a period of six years the records

necessary to enable the persons described in paragraph (q) to determine

whether the conditions of this exemption have been satisfied, except

that

(1) a party in interest with respect to a Plan, other than Harris

Trust, shall not be subject to a civil penalty under section 502(i) of

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

Code, if such records are not maintained or are not available for

examination, as required by paragraph (q); and

(2) a prohibited transaction shall not be deemed to have occurred

if, due to circumstances beyond Harris Trust's control, such records

are lost or destroyed prior to the end of the six year period;

(q) Notwithstanding any provisions of subsections (a)(2) and (b) of

section 504 of the Act, Harris Trust makes the records referred to in

paragraph (p) unconditionally available during normal business hours at

their customary location to the following persons or a duly authorized

representative thereof:

(A) the Department or the Internal Revenue Service; (B) any

fiduciary of a Client Plan with the authority to acquire or dispose of

shares of the Funds owned by the Client Plan; and (C) any participant

or beneficiary of a Client Plan. However, none of the persons described

in (B) or (C) are authorized to examine the trade secrets of Harris

Trust, or commercial or financial information which is privileged or

confidential.

Section III--Definitions

For purposes of this proposed exemption:

(a) The term ``Harris Trust'' means Harris Trust & Savings Bank and

any affiliate thereof, as ``affiliate'' is defined in paragraph (b).

(b) The term ``affiliate'' of a person includes:

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

intermediaries, controlling, controlled by, or under common control

with the person;

(2) Any officer, director, employee, relative, or partner in any

such person; and

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

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``collective investment fund'' or ``CIF'' means a

common or collective trust fund or pooled investment fund maintained by

Harris Trust.

(e) The term ``Fund'' or ``Funds'' means any diversified open-end

management investment company or companies registered under the `40 Act

for which Harris Trust serves as an investment adviser, and may also

provide custodial or other services approved by the Funds.

(f) The term ``net asset value'' per share means the amount which

is calculated by dividing the value of all securities (determined by a

method set forth in a Fund's prospectus and statement of additional

information) and other assets belonging to each portfolio in the Fund,

less the liabilities chargeable to each such Fund portfolio, by the

number of outstanding shares.

(g) The term ``relative'' means a ``relative'' as defined in

section 3(15) of the Act (or a ``member of the family'' as defined in

section 4975(e)(6) of the Code), or a brother, a sister, or a spouse of

a brother or a sister.

(h) The term ``Independent Fiduciary'' means a fiduciary of a Plan

who is unrelated to, and independent of, Harris Trust. For purposes of

this proposed exemption, a Plan fiduciary will not be deemed to be

unrelated to, and independent of, Harris Trust if

(1) such fiduciary directly or indirectly controls, is controlled

by, or is under common control with Harris Trust;

(2) such fiduciary, or any officer, director, partner, employee, or

relative of such fiduciary is an officer, director, partner, or

employee of Harris Trust (or is a relative of such persons); or

(3) Such fiduciary directly or indirectly receives any compensation

or other consideration from Harris Trust for his or her own personal

account in connection with any transaction described in this proposed

exemption. However, with respect to the In-house Plans, the Independent

Fiduciary may receive compensation from Harris Trust in connection with

the subject transactions, provided that the amount or payment of such

compensation is not contingent upon, nor in any way affected by, the

Independent Fiduciary's ultimate decision regarding the Plans'

participation in the transactions.

With the exception of the In-house Plans, if an officer, director,

partner or employee of Harris Trust (or relative of such persons) is a

director of the Plan fiduciary and abstains from participation in (i)

the choice of the Plan's investment adviser, (ii) the approval of any

purchase or sale between the Plan and the Funds, and (iii) the approval

of any change in fees paid by the Plan in connection with any of the

subject transactions, then paragraph (g)(2) shall not apply.

(i) The term ``Secondary Service'' means a service other than an

investment management, investment advisory, or similar service, which

is provided by Harris Trust to the Funds, including, but not limited

to, custodial, accounting, transfer agent, administrative, brokerage,

or any other service.

(j) The term ``Termination Form'' means the form supplied to the

Independent Fiduciary, at the times specified in Section II(k), (l),

and (m), which expressly provides to the Independent Fiduciary an

election to terminate at will the authorization described in Section

II(g) without penalty to the Plan. The Independent Fiduciary may use

such Termination Form to provide written notice of termination to

Harris Trust and instruct Harris Trust to effect the termination by

selling the shares of a Fund held by the Plan by the close of the

business day following the date of receipt by Harris Trust of the

Termination Form. However, if, due to circumstances beyond the control

of Harris Trust, the sale cannot be executed within one business day,

Harris Trust shall have one additional business day to complete such

sale.

(k) The term ``security'' shall have the same meaning as defined in

section 2(36) of the '40 Act, as amended, 15 USC 80a-2(36)(1996).

Effective Date: The proposed exemption, if granted, will be

effective as of March 21, 1997.

Summary of Facts and Representations

1. Harris Trust & Savings Bank is an Illinois state-chartered bank,

a member of the Federal Reserve system, and the largest of 14 banks

owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly owned

subsidiary of Bankmont Financial Corp., which, in turn, is a wholly

owned subsidiary of Bank of Montreal, a publicly traded Canadian

banking institution. Harris Trust & Savings Bank and its affiliates are

hereafter collectively referred to as Harris Trust.

As of December 30, 1995, Harris Trust had total assets of

approximately $17.1 billion. Harris Trust serves as trustee, investment

manager, and/or custodian for approximately 600 Plans. As of December

30, 1995, Harris Trust had approximately $162 billion in Plan assets

under management, of which

[[Page 42072]]

approximately $2 billion was invested in the CIFs.

2. On January 11, 1996, the sale of a portion of Harris Trust's

investment management business to Citibank, N.A. was announced. In

connection with such sale, Harris Trust terminated certain CIFs on

March 21, 1997 and transferred the CIFs' assets in-kind to the Funds in

exchange for shares of the Funds. Harris Trust requests an exemption

for the in-kind transfer of assets of Plans that were invested in these

CIFs who received shares of the Funds. Harris Trust was a fiduciary for

Plan assets that were held in these CIFs, and was also an investment

adviser for the Funds in which the Plans invested.2 The

Plans that invested in the terminated CIFs included not only the Client

Plans of Harris Trust but also two In-house Plans.3 In

addition, Harris Trust represents that conversions of other CIFs to

Funds, through an in-kind transfer of the CIFs' assets to those Funds

in exchange for Fund shares, may occur in the future. Thus, Harris

Trust requests that the proposed exemption cover these future

conversions, provided that the same terms and conditions discussed

herein are satisfied.4

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\2\ Prohibited Transaction Class Exemptions 77-4 and 97-41 (PTCE

77-4, 42 FR 18732, April 8, 1977 and PTCE 97-41, 62 FR 42830, August

8, 1997) permit, under certain conditions, the purchase or sale by

an employee benefit plan of shares of a registered, open-end

investment company whose investment adviser is also a fiduciary of

such plan (but not an employer of employees covered by the plan). In

Advisory Opinion 94-35A, the Department expressed the view that the

relief provided by PTCE 77-4 is unavailable for the purchase of

investment company shares other than for cash. PTCE 97-41 provides,

under certain conditions, specific relief for the purchase of

investment company shares with assets transferred in-kind from a

collective investment fund, but, like PTCE 77-4, does not extend to

in-house plans, and also requires that the other conditions of PTCE

77-4 are satisfied (see Section III of PTCE 97-41, 62 FR 42836).

Thus, Harris Trust has requested that all the conversion

transactions described herein, as well as its fee arrangement (which

is outside the scope of relief afforded by either PTCE 77-4 or PTCE

97-41), be covered by a single individual exemption.

\3\ Prohibited Transaction Exemption 77-3 (PTCE 77-3, 42 FR

18734, April 8, 1977) permits, under certain conditions, the

acquisition or sale of shares of a registered, open-end investment

company by an employee benefit plan covering only employees of such

investment company, employees of the investment adviser or principal

underwriter for such investment company, or employees of any

affiliated person (as defined therein) of such investment adviser or

principal underwriter. However, the Department, at this time, offers

no opinion as to whether PTCE 77-3 covers the purchase of investment

company shares other than for cash.

\4\ In addition, Harris intends to offer Client Plans which are

invested in certain non-terminating CIFs the opportunity to redeem

for cash all or a portion of their interests in these CIFs and

purchase shares of a corresponding Fund. These redemption

transactions will not involve in-kind exchanges and are mentioned

only in connection with the requested exemption for the receipt of

fees.

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Harris Trust also requests an exemption for Harris Trust to receive

fees from the Funds for services rendered to the Funds, in connection

with the investments made in Fund shares by Plans for which Harris

Trust is a fiduciary. This exemption would include those Client Plans

whose assets were transferred from a terminated CIF but would not

include assets transferred by the In-house Plans. One affiliate of

Harris Trust, Harris Trust Bank of Arizona, and a number of the

community banks of Harris Trust which have trust departments, may offer

shares of the Funds to their Client Plans. These banks include Harris

Bank Naperville, Harris Bank Wilmette, N.A., Harris Bank Barrington,

N.A., Harris Bank Winnetka, N.A., Harris Bank St. Charles, Harris Bank

Batavia, N.A. and Harris Trust Company of Florida.

3. The terminated CIFs consisted of the five portfolios of an

entity known as the Harris Trust and Savings Bank Trust for Collective

Investment of Employee Benefit Accounts. These portfolios were (i) the

Government/Agency Intermediate Fund, (ii) the Convertible Fund, (iii)

the International Equity Fund, (iv) the Balanced Blend Fund, and (v)

the Special Capital Fund.

The Funds corresponding to the terminated CIFs consisted of five

portfolios of Harris Insight Funds (the Insight Funds). These

portfolios are (i) the Intermediate Government Bond Fund, (ii) the

Convertible Securities Fund, (iii) the International Fund, (iv) the

Balanced Fund, and (v) the Small-Cap Value Fund.

The Insight Funds further consist of the Harris Insight Funds Trust

and HT Insight Funds, Inc., both open-end, diversified management

investment companies registered under the ``40 Act. Harris Trust serves

as investment adviser to each of the Insight Funds. Harris Trust

retains subadvisers for certain of the Insight Funds to whom it pays a

direct fee. Harris Trust has also entered into portfolio management

contracts with an affiliate, Harris Investment Management, Inc., to

whom Harris Trust pays the investment advisory fees it receives from

the Funds.

Harris Trust requests that the exemption cover not only the Insight

Funds but any mutual fund with respect to which Harris Trust may be the

investment adviser.

The Conversion Transactions

4. Harris Trust represents that permitting the acquisition by the

Plans of Fund shares with Plan assets transferred in-kind to the Funds

will avoid the transaction costs that would otherwise be incurred in

liquidating CIF assets and making the same investments for the Funds,

thus resulting in significant savings, direct and indirect, to the

Plans. No sales commissions (other than customary transfer charges to

parties other than Harris Trust) will be paid by the Plans in

connection with the acquisition of Fund shares with Plan assets

transferred from a CIF. Harris Trust believes that the Funds will offer

the Plans advantages over the CIFs as pooled investment vehicles. In

addition to readily obtainable daily price quotations, ease of trading,

and faster distributions (shares of a Fund may be distributed in-kind),

the Plans as shareholders of a Fund would have the opportunity to

exercise voting and other shareholder rights.

5. With respect to both the past conversion of CIFs to Funds that

occurred on March 21, 1997, and the potential conversion of other CIFs

to Funds that may occur in the future, Harris Trust makes the following

representations regarding disclosures to the Independent Fiduciaries

for the Plans. Prior to any conversion, Harris Trust will provide to

the Independent Fiduciary of each Plan (including that of the In-house

Plans) written notice of termination of the CIF, as well as full and

detailed written disclosure of information concerning the Fund,

including, but not limited to

(1) A current prospectus for the Fund;

(2) A statement describing the fees for investment management,

investment advisory, or other similar services, Secondary Services, and

all relevant other fees to be paid by the Plan and by the Fund to

Harris Trust, including the nature and extent of any differential

between the rates of such fees;

(3) The reasons why Harris Trust considers an investment in the

Fund to be appropriate for the Plan;

(4) A statement describing whether there are any limitations

applicable to Harris Trust with respect to which assets of a Plan may

be invested in the Fund, and, if so, the nature of such limitations;

and

(5) Upon request of the Independent Fiduciary, a copy of the notice

of exemption, if granted (and a copy of this notice of proposed

exemption), once published in the Federal Register.

On the basis of this information, the Independent Fiduciary must

give prior written approval for each acquisition of Fund shares with

Plan assets transferred from a CIF and the fees to be received by

Harris Trust in connection with its services to the Fund. Such approval

must be consistent with the general

[[Page 42073]]

fiduciary responsibility provisions of Part 4 of Title I of the Act.

Plans whose Independent Fiduciaries do not consent to their

participation in the CIF conversion will have their interests in the

CIF redeemed in accordance with the terms of the CIF prior to the

conversion.

Specifically, with respect to the In-house Plans, Harris Trust

appointed Magna Trust Company (Magna), formerly known as Illinois State

Trust Company, as the Independent Fiduciary to oversee and approve the

in-kind transfer of CIF assets attributable to the In-house Plans that

were involved in the conversions that occurred on March 21, 1997. Magna

provides various services to more than 4,900 fiduciary accounts. These

services include employee benefit plan administration, investment

management services, and serving as custodian of securities and

investment advisor for two bank proprietary mutual funds. Magna is

responsible for more than $2 billion in assets, with $1.2 billion in

discretionary assets.

As part of its written report, dated January 24, 1997, Magna

confirmed both its independence from Harris Trust and its

qualifications to serve as the Independent Fiduciary for the In-house

Plans. Magna also represented that it understood and accepted the

duties, responsibilities, and liabilities in acting as a fiduciary

under the Act for the In-house Plans. Based on the disclosures made by

Harris Trust regarding the conversion transactions, Magna determined

that participation therein was in the best interests of, and

appropriate for, each In-house Plan.

In a supplemental report, dated July 7, 1997, Magna represented

that following the conversion transactions, it was provided by Harris

Trust with the required confirmation statements. In addition, Magna

confirmed that the conversion transactions were performed in accordance

with the proposed exemption.

6. With respect to both the past conversion of CIFs to Funds that

occurred on March 21, 1997, and any future conversions of other CIFs to

Funds that may occur, Harris Trust makes the following representations

regarding the valuation and other procedures for such transactions.

All or a pro rata portion of the assets of a CIF are transferred

in-kind to a Fund in exchange for shares of the Fund distributed to the

Plans. The assets transferred consist entirely of cash and marketable

securities. Other CIF assets, or assets which do not meet the

investment objectives of the Fund, are sold on the open market through

an unaffiliated brokerage firm prior to the conversion. The current

market value of the CIF assets is determined by a single valuation for

each asset, with all valuations performed in the same manner and as of

the close of business of the same day, in accordance with Rule 17a-7 of

the '40 Act 5 and the procedures established by the Fund

pursuant to Rule 17a-7. Rule 17a-7 requires, among other things, that

such transactions be effected at the ``independent current market

price'' for each security.6 In this regard, the

``independent current market price'' for specific types of CIF

securities involved in the conversion is determined as follows:

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\5\ Rule 17a-7 provides an exemption from the prohibited

transaction provisions of section 17(a) of the '40 Act (15 U.S.C.

80a-7(a)), which prohibit, among other things, transactions between

an investment company and its investment adviser or affiliates of

its investment adviser. Thus, Rule 17a-7 permits transactions

between the Funds and other accounts that use the same or affiliated

investment advisers, subject to certain conditions that are designed

to insure fair valuation of the assets involved in the transaction.

\6\ Rule 17a-7 also includes the following requirements: (a) the

transaction must be consistent with the investment objectives and

policies of the Fund, as described in its registration statement;

(b) the security that is the subject of the transaction must be one

for which market quotations are readily available; (c) no brokerage

commissions or other remuneration may be paid in connection with the

transaction; and (d) the Fund's board of directors (i.e., those

directors who are independent of the Fund's investment adviser) must

adopt procedures to insure that the requirements of Rule 17a-7 are

followed, and determine no less frequently than quarterly that the

transactions during the preceding quarter were in compliance with

such procedures.

(a) If the security is a ``reported security,'' as the term is

defined in Rule 11Aa3-1 under the Securities Exchange Act of 1934

(the '34 Act)(17 C.F.R. 240.11Aa3-1), the last sale price with

respect to such security reported in the consolidated transaction

reporting system (the Consolidated System; or, if there are no

reported transactions in the Consolidated System that day, the

average of the highest current independent bid and the lowest

current independent offer for such security (reported pursuant to

Rule 11Ac1-1), as of the close of business on the CIF valuation

date; or

(b) If the security is not a reported security, and the

principal market for such security is an exchange, then the last

sale on such exchange or, if there are no reported transactions on

such exchange that day, the average of the highest current

independent bid and lowest current independent offer on the exchange

as of the close of business on the CIF valuation date; or

(c) If the security is not a reported security and is quoted in

the NASDAQ system, then the average of the highest current

independent bid and lowest current independent offer reported on

Level 1 of NASDAQ as of the close of business on the CIF valuation

date; or

(d) For all other securities, the average of the highest current

independent bid and lowest current independent offer determined on

the basis of reasonable inquiry from at least three independent

sources as of the close of business on the CIF valuation date.

Harris Trust represents that the values for the securities

established in determining the amount transferred from the CIF are the

same values used in determining the amount received by the Fund. Thus,

each Plan receives Fund shares having a total net asset value equal to

the value of the Plan's pro rata share of the CIF's assets on the date

of the in-kind transfer.

Within 30 days after completion of each acquisition of Fund shares

with Plan assets transferred in-kind from a CIF, Harris Trust sends by

regular mail to the Independent Fiduciary a written confirmation

containing the following information:

(1) The identity of each security that was valued for purposes of

the transaction in accordance with Rule 17a-7(b)(4);

(2) The market price, as of the date of the in-kind transfer, of

each such security; and

(3) The identity of each pricing service or market-maker consulted

in determining the value of such securities.

Within 90 days after completion of each acquisition of Fund shares

with Plan assets transferred in-kind from a CIF, Harris Trust sends by

regular mail to the Independent Fiduciary a written confirmation

containing the following information:

(1) The number of CIF units held by the Plan immediately before the

in-kind transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(2) The number of shares in the Funds that are held by the Plan

immediately after the in-kind transfer, the related per share net asset

value, and the total dollar amount of such shares.

Harris Trust's Receipt of Fees From the Funds

7. Prior to the investment by a Client Plan in any of the Funds,

the Independent Fiduciary receives a full and detailed written

disclosure of information concerning the Fund, as previously described

in paragraph 5 above (with respect to the conversion transactions). On

the basis of this information, the Independent Fiduciary must give

prior written approval for the investment by the Client Plan in each

Fund and the fees to be paid to Harris Trust in connection with its

services to the Fund. Such authorization must be consistent with the

general fiduciary provisions of Part 4 of Title I of the Act. The

authorization is terminable by the Independent Fiduciary at will

without

[[Page 42074]]

penalty to the Client Plan, upon written notice of termination to

Harris Trust.

8. Harris Trust represents that there are two levels of fees

charged to a Client Plan: (i) those fees which Harris Trust charges for

serving as a trustee, investment manager, or custodian of the Client

Plan (the Plan-level fees); and (ii) those fees which Harris Trust

charges to the Funds (the Fund-level fees) for serving as an investment

adviser to the Fund, as well as for serving as a custodian or transfer

agent for the Funds or for providing other Secondary Services to the

Funds. Harris Trust's rebate procedures relating to its Fund-level fees

are described below. These rebate procedures insure that there is a

credit of Fund-level fees against all Plan-level investment management

fees charged to a Client Plan by Harris Trust and eliminates any

``double fees'' for such services, similar to the requirements of PTCE

77-4, Part II(c).7

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\7\ As previously noted in Footnote 2, PTCE 77-4 permits, under

certain conditions, the purchase or sale (for cash) by an employee

benefit plan of shares of a registered, open-end investment company

whose investment adviser is also a fiduciary of such plan (but not

an employer of employees covered by the plan). PTCE 77-4 requires,

among other things, that the plan not pay an investment management,

investment advisory, or other similar fee with respect to the plan

assets invested in such shares for the entire period of such

investment. However, Section II(c) of PTCE 77-4 states that this

condition does not preclude the payment of investment advisory fees

by the investment company under the terms of an investment advisory

agreement adopted in accordance with section 15 of the '40 Act.

Section II(c) further states that this condition does not preclude

the payment of investment advisory fees by the Client Plan, based on

total plan assets, where a credit representing the Client Plan's pro

rata share of investment advisory fees paid by the investment

company has been subtracted.

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The Rebate Procedures

In its capacity as a plan fiduciary, Harris Trust charges each

Client Plan a fee for investment management/trustee services, based

upon its standard fee schedules and the terms of the specific agreement

it has with the Client Plan. 8 Plan-level fees for

investment management, investment advisory, or other similar services

provided by Harris Trust are currently charged in the form of a single

asset-based investment management fee, which is billed on a quarterly

basis. There is also a Plan-level trustee fee for basic administrative

services provided by Harris Trust, as well as other specific service

fees. Currently, the annual investment management fee ranges from .375%

to .80% of the market value of the assets calculated at the end of each

calendar quarter prior to the quarterly billing date, depending upon

the amount of assets under management. Plan-level fees are subject to

annual minimums for administration and management, expressed as flat

dollar amounts.

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\8\ Harris Trust represents that all fees paid by the Client

Plans directly to Harris Trust for services performed by Harris

Trust are statutorily exempt under section 408(b)(2) of the Act and

the regulations thereunder. However, the Department expresses no

opinion herein as to whether the fees received by Harris Trust for

the provision of services to the Client Plans would comply with the

requirements of section 408(b)(2).

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Harris Trust also provides ``sweep'' services to the Client Plans,

which allow idle cash to be automatically invested temporarily in Fund

shares, in order to insure that a Client Plan's assets are fully

invested at all times. Harris Trust does not charge separate fees for

the provision of such sweep services. Instead, charges for sweep

services are built into Harris Trust's Plan-level investment management

and trustee fees, and any investment advisory fees received by Harris

Trust from the Fund into which idle cash is swept will be credited back

to the Client Plan in the manner of other Fund investments.

9

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\9\ See the Department's letter dated August 1, 1986 to Robert

S. Plotkin, Assistant Director, Division of Banking Supervision and

Regulation, Board of Governors of the Federal Reserve System, which

states the Department's views regarding the application of the

prohibited transaction provisions of the Act to sweep services

provided to employee benefit plans by fiduciary banks and the

potential applicability of certain statutory exemptions.

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For its services as investment adviser to the Insight Funds, Harris

Trust is entitled to receive monthly advisory fees from the Insight

funds, as disclosed in the prospectus, currently ranging from

approximately 0.11% to 1.05% of the Funds' assets under management,

subject to certain voluntary fee waivers. In addition, Harris Trust may

receive fees from the Insight Funds for certain Secondary Services.

Harris Trust receives no 12b-1 fees payable pursuant to Rule 12b-1

under the ``40 Act.

The Funds accrue daily as an expense payable to Harris Trust a

ratable portion of Harris Trust's investment advisory and other

administrative fees, based upon the average daily net asset value of

the Funds. Such fees are paid by the Fund to Harris Trust monthly in

arrears. Harris Trust intends that the Client Plans generally will not

incur any increased fees for investing in the Funds. Harris Trust

rebates to each Client Plan, on the same business day as the receipt of

such fees by Harris Trust, the Client Plan's proportionate share of all

advisory fees payable to Harris Trust by the Funds as of such date.

Such rebate is effectuated through the purchase of additional shares of

the Funds. This rebate procedure is approved by the Independent

Fiduciary at the time it provides its original written approval of the

investment of a Client Plan's assets in the Funds. Harris Trust

continues to charge each Client Plan (other than the In-house Plans)

its full investment management fee for all assets under management,

including those assets invested in the Funds. The net effect of these

procedures is that no Client Plan ever pays, in any period, a

``double'' investment advisory fee for any Client Plan assets invested

in the Funds. Harris Trust represents that the combined total of all

fees it receives for its services to a Client Plan, and for its

services to any of the Funds in which the Client Plan invests,

constitute no more than ``reasonable compensation'' within the meaning

of section 408(b)(2) of the Act.

In the case of the In-house Plans, from which Harris Trust receives

no Plan-level fees, Harris Trust also rebates to each In-house Plan its

proportionate share of all advisory fees payable to Harris Trust by the

Funds through the purchase of additional shares of the Funds, in

accordance with the procedures described above.

9. Harris Trust represents that it maintains a system of internal

accounting controls for the crediting of all Fund-level fees to the

Client Plans. Harris Trust is audited by its independent accounting

firm, currently KPMG Peat Marwick LLP (the Auditor), at least annually

to verify the proper crediting of the fees to each Client Plan.

Information regarding fees is used in the preparation of required

financial disclosure reports of the Funds for the benefit of the Client

Plans.

Specifically, in performing its audit, the Auditor: (a) reviews and

tests compliance with the specific operational controls and procedures

established by the Harris Trust for making credits; (b) verifies, on a

test basis, the daily credit factors transmitted to Harris Trust by the

Funds; (c) verifies, on a test basis, the credits paid in total to sum

of all credits paid to each Client Plans; (d) verifies, on a test

basis, the credits paid in total to the sum of all credits paid to each

Client Plan; and (e) recomputes, on a test basis, the amount of the

credit determined for selected Client Plans and verifies that the

proper credit was made to the proper Client Plan.

In the event that either the internal audit by Harris Trust or the

independent audit by the Auditor identifies an error made in the

crediting of fees to the Client Plans, Harris Trust will correct the

error. With respect to any shortfall in credited fees to a Client Plan,

Harris Trust will make a cash payment to the Client Plan equal to the

amount of the error plus interest based on the greater of either (a)

the money market rate

[[Page 42075]]

offered by Harris Trust for the period involved, or (b) the total rate

of return for shares of the Funds, including dividends, that would have

been acquired during such period. Any excess credits made to a Client

Plan will be corrected by an appropriate deduction and reallocation of

cash during the next payment period to reflect accurately the amount of

total credits due to the Plan for the period involved.

10. Harris Trust states that any increase in the rate of fees paid

by a Fund to Harris Trust must receive the prior written approval from

every Independent Fiduciary of every plan investing in shares of the

Fund. Harris Trust uses a ``negative consent'' procedure to obtain such

approvals. This procedure is described as follows.

In the event of an increase in the rate of any fees paid by the

Funds to Harris Trust for any investment management services,

investment advisory services, or other similar services above that rate

which has been approved by an Independent Fiduciary for a Client Plan,

Harris Trust provides at least 30 days' written notice to each Client

Plan investing in shares of a Fund which is increasing such fees. Such

notice may take the form of a proxy statement, letter, or similar

communication that is separate from the Fund Prospectus and must

explain the nature and amount of the additional service or the nature

and amount of the increase in fees.

In the event of an addition of a Secondary Service by Harris Trust

to a Fund for which a fee is charged, or in the event of an increase in

a fee paid by the Funds to Harris Trust for any Secondary Service

(which may result from either an increase in the rate of such fee or a

decrease in the number or kind of services performed for such fee)

above that rate which has been approved by an Independent Fiduciary,

notice provided to Client Plans must be accompanied by a Termination

Form, which is described in paragraph 11 below.

However, with respect to the In-house Plans, Harris Trust did not

retain the Independent Fiduciary for the In-house Plans for purposes of

reviewing Fund-level fee changes on an on-going basis. Harris Trust

states that following completion of the conversion transactions on

March 21, 1997, the In-house Plans' investments in the Funds were

managed by in-house fiduciaries, consistent with the requirements of

PTCE 77-3.\10\

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\10\ The Department expresses no opinion herein as to whether

any transactions with the Funds by the In-house Plans are covered by

PTCE 77-3.

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11. Each Independent Fiduciary will be supplied annually with a

Termination Form during the first quarter of each calendar year,

beginning with the calendar year immediately following the date of

publication in the Federal Register of a notice of exemption for the

subject transactions. However, the Termination Form need not be

supplied to the Independent Fiduciary sooner than six months after it

has already been supplied, except to the extent required to disclose

either an additional Secondary Service for which a fee is charged or an

increase in fees.

The Termination Form, which expressly provides an election to

terminate the authorization, provides instructions regarding the use of

the Termination Form, including the information discussed in Section

II(l)(1) and (2), above.

12. No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds, and no redemption

fees are paid in connection with the sale of such shares by the Client

Plans to the Funds. In addition, neither Harris Trust nor an affiliate

(including officers or directors, and other persons) will be allowed to

directly purchase from or sell to the Client Plans any shares of the

Funds. The price paid or received by a Client Plan for shares of a Fund

is the net asset value per share at the time of the transaction, and is

the same price which would have been paid or received for the shares by

any other investor at that time. Finally, all dealings between the

Client Plans and the Funds are on a basis no less favorable to the

Client Plans than dealings between the Fund and its other shareholders.

13. To insure that the Independent Fiduciary has the information

necessary to effectively monitor each of the Funds in which a Client

Plan invests, Harris Trust provides to the Independent Fiduciary

certain on-going disclosures, as discussed in Section II(n)(1) and (2),

above.

In this regard, a Harris Trust affiliate may execute securities

brokerage transactions for the investment portfolios of certain of the

Funds. To the extent that Harris Trust does not currently execute

securities brokerage transactions with respect to any Fund for which a

fee is paid to Harris Trust, but proposes to do so in the future,

Harris Trust will provide at least 30 days' written notice to each

Client Plan investing in shares of such Fund. Such notice will be

accompanied by a Termination Form allowing the Client Plan an option to

object to the addition of brokerage services to a Fund, as a Secondary

Service, by Harris Trust. Failure of the Independent Fiduciary to

return the Termination Form will be deemed to be approval by the Client

Plan of brokerage services by Harris Trust. Harris Trust currently has

one affiliated broker, Harris Investors Direct, Inc. (Harris

Investors). Harris Trust represents that Harris Investors has not

provided any brokerage services with respect to the transactions which

have taken place to date.

If any Harris Trust affiliate, including Harris Investors, provides

brokerage services to a Fund, Harris Trust will provide the Independent

Fiduciary of the Client Plan with a statement at least annually that

specifies information about the commissions received by the Harris

Trust affiliate, as discussed in Section II(n)(2)(A) through (D),

above.

14. In summary, Harris Trust represents that the subject

transactions satisfy the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (a) the Funds

provide the Client Plans and the In-house Plans with a more

advantageous investment vehicle than the CIFs, yet avoid the payment to

Harris Trust of any duplicative fees for investment management,

investment advisory, or other similar services;

(b) with respect to the conversions of CIFs to Funds, an

Independent Fiduciary approves in advance any transfer of Plan assets

in exchange for Fund shares and only after full written disclosure of

information concerning the Funds; (c) each Plan receives Fund shares

having a total net asset value equal to the value of the Plan's pro

rata share of the CIF's assets on the date of the in-kind transfer, as

determined by a single valuation for each asset, with all valuations

performed in the same manner and as of the close of business of the

same day, in accordance with the procedures established by the Fund

pursuant to Rule 17a-7 of the 40 Act (requiring the use of independent

sources); (d) the Independent Fiduciary receives written confirmation

of the entire transaction that discloses the number of CIF units held

by the Plan immediately before the conversion and the number of Fund

shares held by the Plan immediately after, the related per unit and per

share values, and the total dollar amount of the CIF units and the Fund

shares involved in the transaction;

(e) with respect to any investments in a Fund by the Client Plans

and the payment of any fees by the Fund to Harris Trust, an Independent

Fiduciary approves such investments and fees in advance and only after

full written disclosure of information concerning the Fund, including a

current prospectus and a statement describing

[[Page 42076]]

all fees to be paid to Harris Trust; (f) any authorizations made by a

Client Plan regarding investments in a Fund, fees paid by the Fund to

Harris Trust, or any increases in fees for secondary services provided

to the Fund by Harris Trust, are terminable by the Independent

Fiduciary at will, without penalty to the Client Plan, upon written

notice to Harris Trust; (g) annual audits by an independent accounting

firm are required to verify the proper crediting to the Client Plans of

fees charged by Harris Trust to the Funds; (h) the Client Plans and the

In-house Plans do not pay any commissions or redemption fees in

connection with their acquisition of Fund shares (either through a

direct purchase of the shares or through a transfer of CIF assets in

exchange for the shares) or the Plans' sale of Fund shares; and (i) all

dealings between the Client Plans and the In-house Plans and the Funds

are on a basis no less favorable to the Plans than dealings between the

Fund and its other shareholders.

Notice to Interested Persons

Harris Trust will provide notice of the proposed exemption to

interested persons by first-class or overnight mail within 15 days of

the date of publication of this notice of pendency in the Federal

Register. Interested persons consist of the Independent Fiduciaries of

all Plans which had investments in a CIF which terminated on March 21,

1997. Interested persons also consist of any other Independent

Fiduciaries for Plans which, at the time this notice is published in

the Federal Register, have approved, or will approve, any transfer of a

Plan's assets from a CIF to a Fund, in connection with the termination

of a CIF prior to the date this proposed exemption is granted. Such

notice shall include a copy of this notice of the proposed exemption,

as published in the Federal Register, and shall inform interested

persons of their right to comment and/or request a hearing with respect

to the proposed exemption. Comments and requests for a hearing are due

within 45 days of the date of publication of this notice in the Federal

Register.

For Further Information Contact: Ms. Karin Weng of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Individual Retirement Accounts (the IRAs) for Marcia A. Hendrichsen,

Larry L. Hendrichsen, Lawrence D. Hendrichsen, Located in Burlington,

Iowa, and William H. Napier, George Rashid, Jr., Jake E. Rashid, Carl

A. Saunders, and John C. Schuldt, Located in Fort Madison, Iowa

(Collectively, the Participants)

[Exemption Application Number: D-10547]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 4975(c)(2) of the Code and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,

August 10, 1990). If the exemption is granted, the sanctions resulting

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

4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed

cash sale (the Sale) of certain membership units (the Units) in the

Catfish Bend Casinos, L.C. (Catfish Bend), by the IRAs 11 to

the Participants, disqualified persons with respect to the IRAs,

provided that the following conditions are met:

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\11\ Because each IRA has only one participant, there is no

jurisdiction under 29 CFR Sec. 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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(a) The Sale of the Units by each IRA is a one-time transaction for

cash;

(b) The terms and conditions of each Sale are at least as favorable

to each IRA as those obtainable in an arm's length transaction with an

unrelated party;

(c) Each IRA receives the fair market value of the Units at the

time of each Sale; and

(d) Each IRA is not required to pay any commissions, costs or other

expenses in connection with each Sale.

Summary of Facts and Representations

1. The IRAs are individual retirement accounts, as described in

section 408(a) of the Code. Among the assets of each IRA are certain

membership Units in Catfish Bend, an Iowa limited liability company

which operates the riverboat casino Catfish II. Currently, there are

66,521 Units outstanding which are owned by 496 members.

The applicants describe the IRAs and their holdings of the Units as

follows:

(a) The IRA of Marcia A. Hendrichsen currently holds assets valued

at approximately $59,127, which includes 20 Units. The IRA originally

purchased the Units on January 27, 1994 for $2,000.

(b) The IRA of Larry L. Hendrichsen currently holds assets valued

at approximately $48,490, which includes 20 Units.

The IRA originally purchased the Units on January 27, 1994 for

$2000.

(c) The IRA of Lawrence D. Hendrichsen currently holds assets

valued at approximately $49,832, which includes 10 Units. The IRA

originally purchased the Units on January 27, 1994 for

$1000.12

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\12\ The Department notes that the Units held in the IRAs of

Marcia, Larry L., and Laurence Hendrichsen, are valued at $250 per

Unit, based on the Deloitte and Touche appraisal discussed below.

However, in the case of the remaining IRAs, the participants carried

the value of the Units at $200 per unit. This amount reflects the

value of the Units prior to the Deloitte and Touche appraisal, and

is, in effect, obsolete. Thus, the value of the Catfish interests is

$250 per Unit as reflected in the aforementioned Deloitte and Touche

appraisal.

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(d) The IRA of William H. Napier currently holds assets valued at

approximately $20,000, which includes 100 Units. The IRA obtained the

Units when Mr. Napier rolled them over with the rest of his assets from

his individual account in the Napier Wright & Wolf law firm plan, which

originally purchased the Units on January 27, 1994 for $10,000.

(e) The IRA of George Rashid, Jr. currently holds assets valued at

approximately $42,434, which includes 200 Units. The IRA originally

purchased the Units on January 28, 1994 for $20,000.

(f) The IRA of Jake E. Rashid currently holds assets valued at

approximately $619,014, which includes 300 Units. The IRA originally

purchased the Units on January 28, 1994 for $30,000.

(g) The IRA of Carl A. Saunders currently holds assets valued at

approximately $36,797, which includes 100 Units. The IRA originally

purchased the Units on January 31, 1994 for $10,000.

(h) The IRA of John C. Schuldt, president of Catfish Bend,

currently holds assets valued at approximately $104,665, which includes

320 Units. The IRA purchased the Units on June 13, 1994 for $32,000.

2. The applicants request exemptions for the Sale of the Units by

each individual IRA to its respective Participant. The applicants

represent that the IRAs have benefitted from significant appreciation

and returns since purchasing the Units. The applicants believe that at

present price levels, an excellent opportunity for the Sale of the

Units now exists. Accordingly, they wish to sell the Units from their

respective IRAs to ensure that each IRA realizes a substantial

profit.13

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\13\ The Department notes that the Internal Revenue Service has

taken the position that a lack of diversification of investments may

raise questions in regard to the exclusive benefit rule under

section 401(a) of the Code. See, e.g. Rev. Rul. 73-532, 1973-2 C.B.

128. The Department further notes that section 408(a) of the Code,

which describes the tax qualification provisions for IRAs, mandates

that the trust be created for the exclusive benefit of an individual

or his beneficiaries. However, the Department is expressing no

opinion in this proposed exemption regarding whether violations of

the Code have taken place with respect to the purchase and

subsequent retention of the Units by some of the Participants.

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[[Page 42077]]

In addition, the applicants represent that the continued holding of

the Units will cause the IRAs to incur unrelated business income tax

(UBIT) pursuant to section 512 of the Code.14 Therefore,

because of the aforementioned reasons, the applicants seek an exemption

to purchase the Units from the IRAs.

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\14\ In this regard, six of the eight IRAs have previously

incurred and paid UBIT as a result of holding the Units. The other

two IRAs did not incur UBIT due to the fact that the earnings on the

Units failed to exceed the $1000 threshold for triggering the tax.

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3. Gary Hoyer, attorney for Catfish Bend, engaged the Valuation

Group of Deloitte and Touche (D&T), an independent, qualified appraiser

located in Chicago, Illinois, to determine the fair market value of the

Units. The applicants represent that D&T has previously provided

services for Catfish Bend. However, the applicants state that payments

made by Catfish Bend to D&T constitute substantially less than one

percent (1%) of D&T's annual gross revenues. After a comprehensive

review of all relevant information, D&T valued the interests on a per

Unit basis at $250.

In its analysis, D&T sought to determine the fair market value of a

Unit on a ``nonmarketable minority interest'' basis. According to the

report submitted by D&T, a nonmarketable minority interest refers to a

minority position in the equity of an enterprise which is not actively

traded on a public exchange.

In valuing the Units, D&T considered the factors described in the

Internal Revenue Service's Revenue Ruling 59-60, which provides general

guidelines for valuing ownership interests in closely-held enterprises.

In addition, the report submitted by D&T indicates that it reviewed the

historical operational and financial data of Catfish Bend, and

conducted a thorough onsite inspection of the riverboat before arriving

at a conclusion as to the value of the Units.

4. The applicants represent that the proposed transactions will be

administratively feasible in that each Sale will be a one-time

transaction for cash. Furthermore, the applicants state that the

transactions will be in the best interests of the IRAs as they will

provide each IRA with the opportunity to dispose of the Units for a

significant profit and eliminate any potential UBIT liability. Finally,

the applicants assert that the transactions will be protective of the

rights of each participant and beneficiary as indicated by the fact

that each IRA will receive the fair market value of the Units, as

determined by a qualified, independent appraiser on the date of Sale

and will incur no commissions, costs, or other expenses as a result of

the Sale.

5. In summary, the applicants represent that the proposed

transactions satisfy the statutory criteria of section 4975(c)(2)

because: (a) the Sale of the Units by each IRA will be a one-time

transaction for cash; (b) the terms and conditions of each Sale will be

at least as favorable to each IRA as those obtainable in an arm's

length transaction with an unrelated party; (c) each IRA will receive

the fair market value of the Units at the time of each Sale; and (d)

each IRA will not be required to pay any commissions, costs or other

expenses in connection with each Sale.

Notice to Interested Persons: Because the applicants are the only

Participants in the IRAs, it has been determined that there is no need

to distribute the notice of proposed exemption (the Notice) to

interested persons. Comments and requests for a hearing are due thirty

(30) days after publication of the Notice in the Federal Register.

For Further Information Contact: Mr. James Scott Frazier, telephone

(202) 219-8881. (This is not a toll-free number).

Bernard Chaus, Inc. Employee Savings Plan (the Plan) Located in New

York, New York

[Application No. D-10606]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 C.F.R. Part

2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990). If the

exemption is granted, the restrictions of sections 406(a), 406(b)(1)

and (b)(2) and 407(a) of the Act and the sanctions resulting from the

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

4975(c)(1)(A) through (E) of the Code, shall not apply, effective

December 24, 1997, to (1) the past acquisition by the the Plan of

certain stock rights (the Rights) pursuant to a stock rights offering

(the Offering) by Bernard Chaus, Inc. (the Employer), the sponsor of

the Plan; (2) the past holding of the Rights by the Plan during the

subscription period of the Offering; (3) the past disposition or

exercise of the Rights by the Plan; and (4) the proposed payment by the

Employer to the Plan of an amount necessary to credit Plan accounts of

participants affected by an administrative error relating to Rights

which were not exercised or sold prior to the expiration of the Rights;

provided the following conditions are satisfied:

(A) The Plan's acquisition and holding of the Rights occurred in

connection with the Offering made available to all shareholders of

common stock of the Employer;

(B) The acquisition and holding of the Rights by the Plan resulted

from an independent act of the Employer as a corporate entity and all

holders of the common stock of the Employer, including the Plan, were

treated in a substantially similar manner with respect to the Offering;

(C) All decisions regarding the holding and disposition of the

Rights by the Plan were made, in accordance with the Plan provisions

for individually-directed investment of participant accounts, by the

individual Plan participants whose accounts in the Plan received Rights

in connection with the Offering, including all determinations regarding

the exercise or sale of the Rights received through the Offering,

except for those participants who failed to file timely and valid

instructions concerning the Rights, in which case the Rights were sold;

and

(D) Within 30 days of the date of publication of the final

exemption in the Federal Register, with respect to the Plan accounts of

participants affected by an administrative error whereby 27 Rights (of

the 17,041 Rights received by the Plan) were not exercised or sold

prior to the expiration of the Rights, the Employer credits the

affected accounts with an amount equal to the value such accounts would

have received if the Rights had been sold on the last day of the

Offering, including interest thereon through the date of such crediting

at a rate equal to the average rate of earnings on all Plan assets

during that period.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

December 24, 1997.

Summary of Facts and Representation

1. The Employer is a designer, manufacturer and marketer of women's

apparel. The Employer is incorporated in New York, with its corporate

headquarters in New York, New York.

2. The Plan is a defined contribution employee benefit plan with

provisions intended to satisfy section 401(k) of the Code. The trustee

of the Plan is the Prudential Trust Company of Moosic, Pennsylvania

(the Trustee), and the Plan is administered by the Employer.

[[Page 42078]]

3. The Plan provides for individual participant accounts (the

Accounts) and participant-directed investment of the Accounts among

seven investment funds (the Funds), one of which (the Stock Fund)

invests exclusively in common stock of the Employer (the Stock). As of

December 19, 1998, the Plan had total assets of approximately $3.4

million, and the Accounts of 205 Plan participants had balances

invested or partially invested in the Stock Fund. As of December 17,

1997 (the Record Date), there were 2,627,727 shares of Stock issued and

outstanding, of which 17,041 shares, or about 0.65%, were owned by the

Accounts participating in the Stock Fund.

4. The Applicant represents that as part of an effort to increase

capital, the Employer determined it was in the best interests of its

shareholders to provide for the offering of rights to purchase

additional shares of newly-issued common stock. Accordingly, on

December 24, 1997, the Employer commenced the Offering by issuing to

all holders of Stock, as of the Record Date, one transferable

subscription Right for each share of Stock held. Each Right conferred

upon its holder an entitlement to purchase 5.464751 shares of

additional Stock (the Additional Shares) at price of $1.4309 per

share15. The Employer authorized the issuance of up to

13,977,270 Additional Shares through the Offering. The provisions of

the Offering included oversubscription privileges which were

exercisable by Plan participants, whose Accounts received Rights, in

the same manner as other recipients of the Rights.16

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

\15\ Except that the Rights issued to Josephine Chaus, the chair

of the board of directors and principal shareholder of the Employer,

entitled her to subscribe for and purchase 5.1811105 Additional

Shares.

\16\ Oversubscription privileges were exercised by only one Plan

participant whose Account received Rights.

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

5. The Employer represents that the Offering did not involve any

guarantee or other assurance that any market in the Rights would

develop or remain available during the Offering. However, the Stock and

the Rights were both traded on the New York Stock Exchange (NYSE)

through the last trading day prior to the expiration of the Offering.

The terms of the Offering permitted exercise of the Rights commencing

December 24, 1997 until 5:00 p.m. EST on January 23, 1998, at which

time any unexercised Rights expired.

6. In anticipation of the Offering, the Plan was amended to permit

each Plan participant with an Account balance invested in the Stock

Fund (the Invested Participants) as of the Record Date to direct the

Trustee either to exercise or sell Rights attributable to his or her

Stock Fund account, and such amendment also established the procedure

for such directions. The Employer represents that on December 24, 1997,

all Invested Participants were sent, via first class mail, a copy of

the Offering circular published by the Employer, a letter from the Plan

administrator providing information about the Offering and describing

the procedures for participant directions with respect to the Offering,

and a direction form. The direction forms sent to the Invested

Participants enabled them to direct the Trustee either to exercise the

Rights allocated to their Accounts or to sell such Rights on the open

market. As provided in the amended Plan, with respect to any Invested

Participant who failed to submit a direction form to the Trustee by

5:00 p.m. EST on January 19, 1998, or submitted an invalid direction

form, the Trustee was required to sell the Rights on the open market.

The Employer represents that this required sale was disclosed to the

Invested Participants in the informational documents relating to the

Offering that were sent on December 24, 1997.

7. For each Invested Participant who directed the Trustee to

exercise Rights allocated to his or her Account, the funds needed to

pay the exercise price were obtained by redeeming specific investments

in one or more Funds in which the Invested Participant's Account was

invested. The Invested Participants directed the Trustee to sell any

specific dollar amount from any specific Fund for the cash needed to

pay the exercise price. Where amounts were redeemed from the Funds

prior to the last day of the Offering, the amended Plan provided that

the Trustee deposit the proceeds of such redemptions in a special

short-term investment account pending the Trustee's payment to the

subscription agent of the exercise price for the Additional Shares.

8. Rights were exercisable by an Invested Participant only to the

extent of funds available in his or her Account in the Plan. If amounts

in the Invested Participant's Account were insufficient to pay the

exercise price for the Additional Shares subscribed for, the amended

Plan provided that the Trustee was to attempt to sell any Rights not

exercised. The proceeds of any Rights that were sold and any income

from the special short-term investment account were credited, with

respect to such sale proceeds, to the Accounts of the Invested

Participants whose allocable Rights were sold, and in the case of such

income, to the Accounts of the Invested Participants whose redemption

proceeds were deposited in the special short-term investment account.

9. In the event that the market price of the Stock, including the

effect of any applicable brokerage commissions and other expenses at

the time the Trustee would submit Rights for exercise, was less than

the exercise price under the Offering, the amended Plan provided that

the Trustee would not exercise such Rights. The Employer represents

that at 5:00 p.m. EST on January 23, 1998, the time of expiration of

the Offering and the date on which the Trustee exercised Rights on

behalf of the Invested Participants directing the exercise of the

Rights, the exercise price of a Right to obtain shares of the Stock was

less than the market price for shares of the Stock on the NYSE, after

giving effect to any brokerage commissions and other expenses relating

to such transactions. Accordingly, the Trustee exercised at that time

all Rights for which a direction to exercise had been properly

submitted (i.e., with a valid direction form) by an Invested

Participant.

10. The Employer represents that, in order to give the Trustee

sufficient time to perform the administrative procedures required to

review participant direction forms and to implement directions,

including the liquidation of other Plan assets as required to enable an

Account to purchase the appropriate number of shares of the Stock at

the exercise price with the Rights, the procedure for participant

direction with respect to the Offering included timing deadlines for

the filing of instructions in advance of the expiration of the

Offering. Accordingly, Invested Participants were required to return

the direction forms to the Trustee by 5:00 p.m. EST on January 19,

1998. The Employer states that this deadline for filing instructions

with the Trustee was specifically and prominently disclosed to all

Invested Participants in the Offering materials they received on

December 24, 1997.

11. The Employer represents the following summary of the Offering:

(a) All 2,627,727 Rights, including overallotments, were exercised

in the Offering. Among the 205 Invested Participants, 23 directed the

exercise of Rights allocated to their Accounts, resulting in the

exercise of 3,771 Rights, including overallotments, or about 0.147% of

the total number of Rights exercised.

(b) Among the Invested Participants, 22 affirmatively directed that

the Rights allocated to their Accounts be sold, resulting in the sale

of 3,287 Rights.

(c) The remainder of the Invested Participants did not respond. In

[[Page 42079]]

accordance with the amended Plan, the Rights allocated to their

Accounts were sold, resulting in the sale of 9,956 Rights. Because of

an administrative error in the communications between the Plan

administrator and the Trustee, 27 Rights allocated to the Accounts were

not sold prior to the expiration of the Rights. The Employer represents

that it shall credit the Accounts of the participants affected by this

administrative error with an amount equal to the value these Accounts

would have received if the Rights had been sold as planned on the last

day of the Offering plus interest thereon through the date of such

crediting at a rate equal to the average rate of earnings on all Plan

assets during that period.

(d) The Employer represents that all directions and instructions

which were filed by the Invested Participants with respect to the

Offering were observed and executed by the Trustee. In addition, all

Invested Participants had been notified adequately in advance of the

Offering of the procedure for directing and instructing the Trustee

with respect to their Accounts' rights under the Offering. Thus, the

Employer represents that all actions by the Trustee relating to the

Offering, with respect to the Accounts, were pursuant to the express

participant directions, except for the Accounts of participants who

failed to file timely and valid instructions with the Trustee pursuant

to the direction procedure. The Employer states that the Trustee's

action on behalf of Accounts whose participants failed to file

instructions with the Trustee, which was the sale of the Rights

received by such Accounts, was disclosed in the explanatory materials

for the Offering and in the direction forms sent to Invested

Participants. The Employer states further that all actions taken by the

Trustee in connection with the Offering were consistent with the

participant-directed nature of investments under the Plan.

12. In summary, the applicant represents that the transactions

satisfied the criteria of section 408(a) of the Act for the following

reasons: (a) The Plan's acquisition of the Rights resulted from an

independent act of the Employer; (b) With respect to all aspects of the

Offering, all holders of the Stock, including the Accounts of Invested

Participants in the Plan, were treated in a substantially similar

manner; (c) All decisions with respect to the Plan's acquisition,

holding and control of the Rights were made by the individual Invested

Participants with Account balances invested in the Stock Fund, except

for those who failed to file timely and valid instruction forms, in

which case the Rights were sold; (d) The disposition or exercise of the

Rights received by the Invested Participants was executed by the

Trustee in an orderly manner pursuant to the terms of the Offering

relating to the submission of valid instruction forms by such

Participants; and (e) The acquisition and holding of the Rights by the

Plan affected all of the Invested Participants, and their Accounts held

only about 0.65% of the Stock outstanding as of the Record Date of the

Offering.

For Further Information Contact: Ronald Willett of the Department,

telephone (202) 219-8881 (This is not a toll-free number.).

General Information

The attention of interested persons is directed to the following:

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

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

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

discharge his duties respecting the plan solely in the interest of the

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

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete, and that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 31st day of July 1998.

Ivan Strasfeld,

Director of Exemption Determinations Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-21001 Filed 8-5-98; 8:45 am]

BILLING CODE 4510-29-P