Grant of Individual Exemptions; Harris Trust & Savings Bank, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 98-49; Exemption Application No. D-

10349, et al.]

Grant of Individual Exemptions; Harris Trust & Savings Bank, et

al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) 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).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, D.C. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, 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 proposed to the Secretary

of Labor.

[[Page 56228]]

Statutory Findings

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

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

Harris Trust & Savings Bank and its Affiliates (Harris Trust)

Located in Chicago, IL

[Prohibited Transaction Exemption 98-49; Exemption Application No. D-

10349]

Exemption

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

Transferred in-kind from a CIF

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 * 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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\ *\ 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

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 detailed written

disclosure of

[[Page 56229]]

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 this

notice of exemption (and a copy of the notice of proposed exemption),

as 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 less favorable to the Client Plans than

[[Page 56230]]

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 exemption is effective, as of March 21, 1997.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on August 6, 1998 at 63 FR

42068.

Written Comments

The Department received one written comment with respect to the

notice of proposed exemption (the Notice) and no requests for a

hearing. The written comment was submitted by the applicant and

concerns a clarification to the record.

Harris Trust notes that the Summary of Facts and Representations

(the Summary) for the Notice, in Paragraph 6, the second subparagraph

(see page 42073, column 1) inaccurately states, ``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'' [emphasis

added]. Harris Trust wishes to clarify that the shares of the Fund were

[[Page 56231]]

actually issued by the Fund directly to the Plans, rather than to the

CIF and then, in turn, distributed by the CIF to the Plans.

The Department notes the applicant's clarification to the written

record, as stated in the Summary. Accordingly, the Department has

determined to grant the exemption as proposed.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

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

John B. Vick, D.D.S., P.A. Pension Plan (the Plan) Located in

Minneapolis, MN

[Prohibited Transaction Exemption 98-50; Exemption Application Number

D-10578]

Exemption

The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to the cash sale (the Sale) of two promissory notes

(the Notes) by the Plan to Dr. John B. Vick, a party in interest and

disqualified person with respect to the Plan, provided the following

conditions are met:

(a) The Sale is a one-time transaction for cash;

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

to the Plan as those obtainable in an arm's length transaction with an

unrelated party;

(c) The Plan receives an amount equal to the fair market value of

the Notes as determined by a qualified, independent appraiser as of the

date of Sale; and

(d) The Plan is not required to pay any commissions, costs or other

expenses in connection with the Sale.

For a more complete statement of the facts and representations

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

refer to the proposed exemption published on August 31, 1998 at 63 FR

46253.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, 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 or disqualified

person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of,

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

administrative exemptions and transactional 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

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, D.C., this 15th day of October 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-28216 Filed 10-20-98; 8:45 am]

BILLING CODE 4510-29-P